An Icelandic volcano has erupted following a week of small earthquakes, spewing lava and ash into the air and forcing hundreds to flee on Sunday, but causing no casualties.

Smoke could be seen rising from behind Eyjafjallajoekull glacier and volcanic ash filled the sky after the eruption that began around midnight on Saturday and which was foretold by a week of localised earthquakes.

It occurred in a remotely populated area about 125 kilometres (75 miles) east of Iceland's capital Reykjavik and caused 600 people to flee their homes.

The eruption brought to a halt all flights into and out of the Nordic island nation, but they resumed with serious delays mid-day Sunday, while all domestic traffic remained grounded.

The risk of floods posed by melting glacial ice prompted the authorities to declare a state of emergency and to immediately evacuate the area.

It was the first volcanic eruption in Iceland since 2004, and the first in the vicinity of Eyjafjallajoekull, in the south of the island, since 1823.

"We did not have time to be afraid and everyone was so calm and stoical," farmer Dorhildur Bjarnadottir, 51, told AFP in Hvolsvoellur, a small town of 800 near the glacier where some of the evacuees took refuge.

"The worst part in all of this is to leave our animals behind at home," her husband added.

"Around 600 people have been evacuated and the area is still closed," local police chief Kjartan Thorkelsson told AFP.

"Because the eruption is still going strong, we will continue to keep the highest level of security."

He added: "All roads are closed and continue to be closed, but those who need to drive between places will be registered and allowed to do so. We encourage people who have been evacuated to remain calm."

Significant floods were avoided because the fissure eruption occurred between two large glaciers, Eyjafjallajoekull and Myrdalsjoekull, said Magnus Tumi Gudmundsson, a professor of geophysics and civil protection advisor.

"We are extremely lucky that the eruption did not occur underneath the glacier, so therefore a gigantic glacier flood did not occur," Gudmundsson said.

With about 15 magma exits at the fissure, he said, the volcano "is not a big eruption" by Icelandic standards.

But Gudmundsson warned that extreme caution had to be exercised, because the eruption was taking place so close to two large glaciers.

"The eruption could end within one or two days, but also within one or two years," he told reporters.

The Red Cross set up an emergency telephone line and opened three evacuation centres in the towns of Hella, Hvolsvoellur and Vik to help people displaced by the eruption.

"People have been extremely calm and the registration of inhabitants went splendidly," Red Cross field manager Hrafnhildur Bjornsdottir told AFP.

Bjoerk Valdimarsdottir, whose sister lives in the vicinity of the eruption, told Swedish news website the area's residents had completed evacuation drills last summer to be prepared for a volcanic eruption.

"Everything went smoothly thanks to last summer's practicing," she said, adding residents were asked to refrain from using their mobile phones to avoid overloading the network.

Valdimarsdottir said the glow from the eruption could be seen near the capital, where she lives.

"There are lots of people who want to go there to take a look and that's why they closed the road some miles out of Reykjavik," she said.

"Those who live in the area are enormously worried about their animals. The ashes can poison the soil and kill the cattle."

Asked by Swedish public radio if she felt there was any danger, local resident Christina Bengtsson also said the biggest problem was volcanic ash.

"The ashes can be dangerous for the animals," she said. "When we went out before, we could feel (the ash) in our mouths. From my window, I see a red sky. If I went out the door, I could also see fire."