REYKJAVIK (AFP) - Iceland on Friday temporarily banned air traffic near its largest volcano after a lava field erupted overnight, threatening a repeat of the global travel chaos four years ago when another peak blew.

The aviation "red alert" for Bardarbunga volcano was lifted in the late morning when it became clear that the eruption was minor and did not release large quantities of ash.

During the alert, Iceland's airports remained opened with no disruption to flights, according to the national airport operator Isavia.

In 2010, another Icelandic volcanic eruption caused the biggest closure of European airspace in peacetime, halting 100,000 flights and stranding eight million passengers.

While Bardarbunga - located under Europe's largest glacier - had not yet started spewing ash as of Friday afternoon, the release of a massive cloud remained a possible scenario with potentially dire consequences for aviation.

"An eruption began... just after midnight," said the civil protection office in a statement, adding that it took place in a lava field 5km north of the volcano, creating a volcanic fissure 900m long.

"No volcanic ash has been detected by the radar system at the moment. The earthquake caused by the eruption is small, indicating an... eruption without significant explosive activity," it said.

The authority described the event as an "effusive eruption without significant explosive activity" - meaning the lava flow was mostly on the surface of the volcano with little "airborne ash material".

Tumi Gudmundsson, a geophysicist at the University of Iceland told public broadcaster RUV that the eruption was an "accidental" knock-on effect of seismic activity inside the volcano but that an explosive eruption of volcano itself could still occur and was impossible to predict.

When the red alert was first issued in the early hours of Friday morning a vast area of Icelandic airspace was closed off - including the northern airport of Akureyri which has regular internal flights and connections to Greenland and several European cities.

Later, the restricted area was reduced to 18.5km around the site of the eruption at altitudes below 1,500m.

The Bardarbunga volcano system became active on Aug 16, producing hundreds of tremors daily.

Four days later hundreds of people were evacuated from the area north of the Vatnajoekull glacier which covers the volcano and is largely uninhabited, with only trekking cabins and campsites used by tourists and hunters in the summer months.

Friday was the second time in less than a week that Icelandic authorities issued a red alert to aviation but then lowered the level to orange - meaning that eruption is possible but not imminent - soon after.

The alert around Bardarbunga was first raised to red from orange on Aug 23, with earthquakes shaking the volcanic system more than 20 times an hour on Tuesday alone.

One of the quakes measured 5.7, the most powerful in the area since 1996.

Bardarbunga, in the south-east of the country, is Iceland's second-highest peak, and is believed to have the potential to cause serious disruptions to air traffic if there is a major eruption.

The eruption of Eyjafjoell, a smaller volcano, in April 2010 caused travel mayhem.

Iceland's most active sub-glacial volcano Grimsvotn erupted in 2011, forcing the country to temporarily shut its airspace and also sparking fears of a repeat of the Eyjafjoell flight chaos.