Iceland's second volcano eruption in less than a month melted part of a glacier and caused heavy flooding on Wednesday, forcing up to 800 people to evacuate and grounding some flights over Norway.

"We have two heavy floods coming out from the melting of the Eyjafjallajokull glacier," local police spokesman Roegnvaldur Olafsson told AFP from near the site of the eruption in the south of the country.

So far, "no lives are in danger but we have evacuated the area and all roads are closed," he said, adding that the ongoing eruption was bigger than the blast at the nearby Fimmvorduhals volcano last month.

Police said earlier Wednesday that following the eruption, which began around 1:00 am (0100 GMT), between 700 and 800 people had been evacuated from their homes in the remote, lightly populated area 125 kilometres (75 miles) east of Reykjavik.

"There were a lot of earthquakes in the area," police spokesman Baldur Sigurdsson told AFP.

Norwegian ambassador Margit Tveiten and a group of other Norwegians camping not far from the eruption site were also set to be evacuated after roads out of the area were flooded, the embassy in Reykjavik said.

"There are large floods on both sides of the volcano, and the road in (to where they are) is blocked and the whole area is isolated due to the floods ... There are fears that a large bridge will break," embassy spokesman Per Landroe told AFP.

According to geophysicist Gunnar Gunnarsson of Iceland's Meteo Institute, the eruption was in "the southwestern part of Eyjafjallajokull's top crater".

"Smoke coming out of the top crater is towering more than 20,000 feet (6,000 metres) in the air," he told AFP around midday Wednesday.

"The water flow in the Gigjokull glacier tongue in the northern part of Eyjafjallajokull has risen by 2.5 metres and is still rising," he added.

Icelandic public broadcaster RUV reported Wednesday afternoon that a 500-metre fissure had appeared at the top of the crater.

Evacuees were being directed to Red Cross centres, RUV said.

Olafur Eggertsson said he had been forced to evacuate his farm, which lies in the path of one of two large floods of melt water coming from the glacier.

"At around 10:30 this morning we heard a lot of noise and saw mud and soil suddenly rushing down from the mountain. Just 30 minutes later we had mud and soil and a giant flood running into our dyke above the farm," Eggertsson told AFP.

"So in just a half hour, mud and soil came cascading down the mountain, down to our farm and on to the national highway that lies just beneath our farm. That is a total of four kilometres (2.5 miles) in just 30 minutes," he said.

His family had been taken by surprise, and all the animals had been left behind.

"We have 200 animals on our farm: cows and sheep who are all inside now. It takes some time for the dykes to be destroyed and I don't know yet if they are in danger, but we are extremely worried," he said.

The evacuees had not been allowed back to their homes by Wednesday evening, local Hvolsvellur police officer Atli Ardal told AFP, but said the road along the flooded Markarfljot river was being repaired.

"The road was cut and destroyed in three places near the Markarfljot and at another place further east," he said, adding that "no homes or houses have been destroyed."

Icelandic Airport Authority spokeswoman Hjordis Gudmundsdottir told AFP that the wind was blowing ash from the eruption toward Norway, allowing Iceland's main airport to remain open.

Only one local airport near the eruption site has been closed, according to the authority.

However, flights over northern Norway were grounded late Wednesday due to fear that ash from the eruption could cloud visibility, a spokesman for Norway's airport network operator Avinor said.

Last month, the first volcano eruption at the Eyjafjallajokull glacier since 1823 -- and Iceland's first since 2004 -- briefly forced 600 people from their homes in the same area.

That eruption at the Fimmvorduhals volcano, which gushed lava for weeks, ended Tuesday, Magnus Tumi Gudmundsson, a professor of geophysics and civil protection advisor, told AFP.