* Warning code lowered to orange from highest red
* Met Office says no eruption occurred Saturday
* Two earthquakes near volcano overnight
* 2010 eruption in Iceland immobilised aviation industry (Adds no-fly zone over volcano lifted)
By Robert Robertsson
REYKJAVIK, Aug 24 (Reuters) - Iceland lowered its warning code for possible volcanic disruption to the aviation industry to orange from red on Sunday after further analysis of an apparent eruption under a glacier found there had been no eruption after all.
The risk level had been raised to red, the highest level on the country's five-point alert system, on Saturday after authorities detected signs of a small eruption beneath a glacier near the Bardarbunga volcano in central Iceland.
Ash from the eruption of Iceland's Eyjafjallajokull volcano shut down much of Europe's airspace for six days, affecting more than 10 million people and costing $1.7 billion.
"Observations show that a sub-glacial eruption did not occur yesterday. The intense low-frequency seismic signal observed yesterday has therefore other explanations," the Icelandic Met Office said.
The office had therefore decided to move the aviation warning code from red to orange, it said, but since there was no sign the seismic activity was slowing down, an eruption could still not be excluded.
The national police commissioner said separately that all restrictions on aviation had been cancelled. Airspace of 140 by 100 nautical miles above the volcano had been closed to aircraft on Saturday.
However, restrictions on roads and evacuated areas in the region remained in effect, it said. Authorities were moving away from emergency footing though they remained on alert.
There have been thousands of small earthquakes over the past week at Bardarbunga, which is Iceland's largest volcanic system and located under the ice cap of a glacier. It is in a different range to Eyjafjallajokull, which erupted in 2010.
Red alert indicates an eruption is imminent or underway with a significant emission of ash likely.
The Met Office said on Sunday a magnitude 5.3 earthquake at 5 km (3 miles) depth had struck after midnight while another, with a magnitude of about 5, had occurred some five hours later.
"These are the strongest events measured since the onset of the seismic crisis at Bardarbunga and the strongest since 1996," the office said.
The region of the Bardarbunga volcano in the centre of the North Atlantic island nation was evacuated due to days of heightened seismic activity.
The evacuated zone was extended somewhat on Saturday, but Icelandic airports remain open.
Brussels-based aviation authority Eurocontrol said that as soon as the volcano had erupted, the Volcanic Ash Advisory Centre in London would produce a regular forecast about the levels of volcanic ash in the atmosphere.
Based on this forecast, civil aviation authorities may issue a notice but it was the responsibility of individual airlines whether they would operate and how they would adapt their flight schedules, Eurocontrol said. (Writing by Niklas Pollard; Editing by Raissa Kasolowsky)