A volcano eruption in the south of Iceland overnight is reported to have forced hundreds of people to move from the area, diverting flights following a declaration of state of emergency made by authorities, officials posted on Sunday.

The eruption occurred shortly before midnight when the Eyjafjallajokull glacier, the island's fifth largest, began to spew smoke and lava from several craters along a rift.

Also, it is reported that a state of emergency was declared in communities near the 160km glacier, with 450 people diverted from an area southeast of Reykjavik, the capital. However, no damage or injuries were immediately reported.

"The evacuations have gone smoothly," quoted local Police Chief Kjartan Thorkelsson, adding there was no indication the volcano presented any immediate danger to people.

Authorities revealed to have thought that the huge eruption was below the glacier and could result in flooding.

However, scientists initiating an aerial survey of the area later claimed that the eruption had not occurred below the ice thereby reducing the chances of flooding from glacier melt.