Rivers in the area have risen by up to 3m (10 feet).
Up to eight hundred people have been evacuated from their homes in south- west Iceland after a volcanic eruption under a glacier, officials say.
Several earthquakes have been registered in the area and huge plumes of steam were seen rising there.
Geologists say the eruption is likely to be taking place directly under a huge ice sheet and could lead to destructive floods.
The eruption is the second in the Eyjafjallajoekull area in one month.
"There is an eruption going on in the southwestern part of Eyjafjallajoekull's top crater," Gunnar Gunnarsson from Iceland's Meteo Institute was quoted as saying by AFP news agency.
Evacuees have been directed to Red Cross care centres nearby.
Rivers in the area have risen by up to three metres (10 feet), AP reports.
Dense fog and smoke fumes have made it difficult to determine the exact location of the eruption, according to the Danish newspaper Politiken.
The last volcanic eruption at the Eyjafjallajoekull glacier was on 20 March - the first since 1821 - and it forced about 500 people in the sparsely populated area from their homes.
Iceland lies on the Mid-Atlantic Ridge, the highly volatile boundary between the Eurasian and North American continental plates