JAKARTA (REUTERS) - Indonesia shrank the exclusion zone around a rumbling volcano on the resort island of Bali on Thursday (Jan 4), allowing farmers to return to their homes.

The 3,000m Mount Agung remains on alert for a major eruption, but officials said the danger zone around the crater would be reduced to a 6km radius from 10km.

"Mount Agung remains in an eruption phase and could affect settlements. All parties are urged to remain cautious," press relations officer of the Ministry of Natural Resources Agung Pribadi said in a statement.

The volcano has been spewing lava and ash since late November last year, when the authorities raised the alert status to the highest.

Bali airport was closed for three days, leaving thousands of tourists stranded and prompting others to cancel their year-end holiday plans.