The eruption in Southwestern Iceland late on Monday followed weeks of seismic activity that had already led to a complete evacuation of a town with 4,000 inhabitants.
"Today, there is no visible activity in the volcano, so this decision was made," the Civil Protection authority said in a statement, adding the level was lowered from "emergency" to "danger".
Iceland's meteorological office, however, warned that chances of an eruption in the region around the Svartsengi volcanic system, where magma continues to accumulate, are growing daily.
"This development will likely lead to another dike intrusion and, ultimately, a volcanic eruption," the office said in a statement on Friday evening.
(Reporting by Essi Lehto; Editing by Terje Solsvik and Richard Chang)
