Hundreds evacuate as volcano erupts in southern Iceland.

A volcano erupted in the south of Iceland overnight, forcing hundreds of people to evacuate from the area and diverting flights after authorities declared a local state of emergency, officials said on Sunday.

The eruption began shortly before midnight when 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 local state of emergency and dispatched rescue teams to evacuate about 500 people living in the thinly populated area near the eruption site, but no injuries or damage to property was reported.

Three Red Cross care centres were also 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, but 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.

International flights were diverted away from the island and other flights were cancelled due to the risk that possible clouds of ash could interfere with navigation, they said.

Scientists in Iceland had been monitoring the Eyjafjallajokull glacier, which has been 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 but we did note a few tremors around 2 on the Richter scale -- not enough to tell us that an eruption was about to start," Geophysicist Steinunn Jakobsdotter told local media.