A volcano eruption is seen near the Eyjafjallajoekull glacier, about 120 kilometres east of Reykjavik, Iceland
Shortly before midnight, the Eyjafjallajokull glacier, the island's fifth largest, started to spew smoke and lava from several craters along a rift which is popular with hikers.
Police declared a state of emergency and sent rescue teams to evacuate about 500 people living in the thinly populated area near the site. No injuries or damage to property were reported.
Three Red Cross care centres were opened in nearby villages to assist the evacuated population.
"The evacuations have gone smoothly," said local police chief Kjartan Thorkelsson, adding there was no indication the volcano presented any immediate danger to people.
The volcano spewed lava and threw up a plume of smoke about one kilometre high. There was little threat of flooding unless the eruption grew in scope and began to melt large amounts of ice on the glacier, police said.
Flights to and from Iceland were cancelled due to the risk that clouds of ash could interfere with navigation, with flights from the U.S. cities of Orlando and Seattle diverted to Boston until later in the day.
Some 1,300 travellers were stranded in airports in Iceland and abroad, the Civil Authority said, adding all flights were expected to start taking off later in the day.
Iceland sits on a volcanic hotspot in the Mid-Atlantic Ridge and has relatively frequent eruptions, although most occur in sparsely populated areas and pose little danger to people or property. The last eruption took place in 2004.
Scientists had been monitoring the Eyjafjallajokull glacier, dormant since 1821, for signs of seismic activity but said there had been little warning of an eruption on Saturday.
"There was little increased seismic activity prior to the eruption," geophysicist Steinunn Jakobsdotter told local media, adding scientists had noted a few magnitude 2 tremors that were "not enough to tell us that an eruption was about to start."
There have been 21 eruptions in Iceland since 1963, but the only one to cause any damage took place in 1973 in the Westmann Islands and caused no casualties.
Geophysicist Magnus Tumi Gudmundsson told a news conference there was no way to predict how long the eruption could last, though it was possible it could lead to flooding if the volcanic fissure were to expand west.
"It could end tomorrow, it could go on for a year or two, but this is a small eruption," he said.