Iceland’s capital city could be hit by gas pollution and fumes from the spectacular eruption of a volcano some 42 kilometres away, the Meteorological Office warns.

The volcano, in the country’s south-west, began spewing lava 100 metres into the air on Tuesday (AEDT) after weeks of earthquakes that prompted the evacuation of an entire nearby town.

The stunning show can be seen as far as the capital Reykjavik and has been described by volcano professor Michael Watson as “among the most spectacular ever seen”, which will be a strong pull for tourists.

The fiery and smoky display has turned the sky a brilliant shade of orange-red for miles around.

So far, the molten lava pouring out of a huge four-kilometre crack appears to be flowing away from the only nearby town of Grindavik.

But some 3400 residents who were whisked away last month fear they will never be able to return to their homes.

The Icelandic Coast Guard flew a helicopter over the active volcano on the Reykjanes peninsula and has been sharing its awe-inspiring footage with the public.

Officials said the eruption’s intensity was reducing, but the seismic activity could last for months.

The government said flights were unlikely to be affected, quashing international travel concerns lingering after the chaos brought by the ash cloud from an eruption on the north Atlantic island in 2010.

“The eruption does not present a threat to life,” a government statement said.

“There are no disruptions to flights to and from Iceland and international flight corridors remain open.”

The volcanic crack extends for 4km. Photo: Icelandic Coast Guard

Matthew Watson, professor of volcanoes and climate at Britain’s University of Bristol, said it was “not impossible that there may be some impact on air travel”, although it was unlikely.

“This type of eruption doesn’t generally produce much ash which is what tends to ground planes,” he said.

The eruption on the Reykjanes peninsula spewed lava and smoke into the air after weeks of intense seismic activity.

Authorities last month relocated the nearly 4000 residents of the fishing town of Grindavik, about 40 kilometres south-west of Reykjavik. They have been allowed to return occasionally to check on homes put at risk by the tremors.

Hans Vera, 56, originally from Belgium but living in a house just east of Grindavik since 1999, had hoped that residents would be allowed to return for good or as long as is possible on a volcanic island.

But that all changed when the eruption finally arrived.

“I don’t see that in the near future they will let people get close to Grindavik. So we are back in the waiting game,” he said.

He described his home near the sea as a winter paradise – and the prospect of not being able to spend the Christmas holidays there with his family came as a blow.

“We are not going to paradise this time around,” he said.

The evacuated town of Grindavik not far from the volcano on the Reykjanes peninsula. Photo: Getty

Live footage of the eruption showed bright yellow, orange and red lava in sharp contrast against the sky.

Some tourists were in awe at the spectacle.

“Our BnB hosts sent us a message that the volcano has erupted,” a tourist from the Netherlands who gave his name as Wouter said.

“It’s a once in a lifetime for us so we don’t want to miss that… It’s a bit far from here but you can still see some lava coming up, for us this is amazing.”

The eruption opened a four-kilometre fissure.

But at its southernmost point the crack was still three kilometres from Grindavik, Iceland’s Meteorological Office said, and the power of the volcano was decreasing.

“The eruption is taking place north of the watershed so lava does not flow towards Grindavik,” geologist Bjorn Oddson told public broadcaster RUV.

Gas pollution could still occur in the area of the capital Reykjavik, officials said.

Residents watch billowing smoke as lava eruptions colour the night sky. Photo: Getty

Located between the Eurasian and the North American tectonic plates, among the largest on the planet, Iceland is a seismic hot spot because the two plates move in opposite directions.

The Blue Lagoon, a geothermal spa popular with tourists, has been largely closed since the seismic activity was detected.

“It could potentially go on for several months, it could also just stop later today or tomorrow,” said Halldor Geirson, an associate professor at Institute of Earth Sciences at the University of Iceland.

Lava flows had decreased from 200-250 cubic metres a second in the first two hours of the eruption to about a quarter of that by Tuesday morning.

Geirson said most of the lava was flowing into an area where there was little infrastructure.

-with AAP