No ash has been detected in the eruption but white steam has been rising from the volcano
The Icelandic Met Office has lowered its aviation warning from red to orange near the Bardarbunga volcano, which saw an eruption begin overnight.
The new alert, the second-highest, means that aviation authorities can now decide if planes may travel over the volcano's airspace.
Scientists said a fissure eruption 1km (0.6 miles) long started in a lava field north of the Vatnajokull glacier.
The volcano has been hit by several recent tremors.
The Icelandic Met Office confirmed to the BBC that since no ash was detected in emissions from the volcano's eruption, it was now possible to downgrade the earlier alert level.
Civil protection officials said Icelandic Air Traffic Control had closed the airspace above the eruption up to a height of 5,000ft (1,500m), but now some aircraft will be able to pass over the volcano if aviation authorities give airliners the go-ahead.
The fissure eruption took place between Dyngjujokull Glacier and the Askja caldera, according to a statement from the Department of Civil Protection.
Some aircraft will be able to pass over the volcano if aviation authorities give airliners the go-ahead
Bjorn Oddsson, a geophysicist from Iceland's Department of Civil Protection and Emergency Management, said the eruption was currently not affecting air travel.
"It's mostly effusive; there's no ash in the air, and not even in the vicinity," he said.
"So mostly lava is pouring out of the craters right now and the only flight restriction is over the area. All airports are open, and things are quite in control."
BBC transport correspondent Richard Westcott says that even if a big cloud of volcanic ash were emitted, it would not cause the same level of disruption to flights that brought Europe to a halt in 2010.
He says new equipment that airliners and engine makers have been testing would allow planes to identity and fly around ash clouds.
Iceland's Eyjafjallajokull volcano erupted in 2010, producing ash that disrupted air travel across Europe.
The size of the Bardarbunga volcano under the ice was not discovered until it was seen by satellite in 1973
Analysis by BBC science correspondent Rebecca Morelle
Initial fears that this might trigger a scenario just like the 2010 Eyjafjallajokull volcano have been put aside - at least for now. The worry was that the magma might erupt beneath a thick ice glacier, triggering an explosive ash cloud. Instead, the molten rock has moved north, where the ice is less thick, and we have a fissure eruption, emanating from a 1km-long crack in the ground.
At the moment, scientists say it's not explosive, instead a mixture of lava and steam is slowly coming out of the vent. Only small spurts of ash have been spotted and they are not jetting up into the sorts of altitudes that would cause disruption to flights. There are still concerns about flooding - the water level in one lake is thought to have risen by 5-10m in the past few days.
This could be a repeat of Iceland's "Krafla fires", which for 10 years produced spectacular fountains of lava that were more of a tourist attraction than a threat. However, there is also a chance the magma could start to move towards another large volcano called Askja, where it could trigger a much larger blast.
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