(Adds alert level relaxed to orange from red)
By Robert Robertsson and Simon Johnson
REYKJAVIK/STOCKHOLM, Aug 29 (Reuters) - Iceland reduced its aviation warning level to orange on Friday after concluding that a small eruption in the Bardarbunga volcano system that triggered a hours-long red alert actually posed no threat to aircraft.
No sign of ash like that from the Eyjafjallajokull eruption that shut much of Europe's air space in 2010 has been detected this time. But the Icelandic Metrological Office said a no-fly zone in a radius of 3 nautical miles just above the Bardarbunga volcano in central Iceland would remain in effect.
"The small eruption is not a threat to aviation and the published aviation warning area has been cancelled," the Met Office said in a statement.
Iceland's largest volcanic system, which cuts a 190-km (118-mile)-long and up to 25-km-(15.5-mile)-wide swathe across the North Atlantic island, has been hit by thousands of earthquakes over the last two weeks and scientists have been on high alert in case of an eruption.
Reykjavik's Met Office said that just after midnight an estimated 1-km-long fissure eruption began in a lava field north of the Vatnajokull glacier, which covers part of the Bardarbunga system.
While the risk of an ash cloud is highest in case of a sub-glacial eruption, Icelandic authorities for a few hours raised the aviation warning level to red, the highest on a five-colour scale and indicating that an eruption is imminent or under way, with a risk of spewing ash.
The latest eruption was at the tip of a magma dyke 40 km from the main Bardarbunga crater and activity subsided to relatively low levels after peaking between 0020 and 0200 GMT, Met Office seismologist Martin Hensch said earlier.
He said that it was impossible to say how the eruption would develop.
"One of the concerns is that the fissure opens into the glacier but presently there is no sign of that happening," he said, adding that the eruption was 6-8 km from the glacier.
Nick Petford, a vulcanology expert at the University of Northampton in Britain, said fissure eruptions were often spectacular, but relatively low key and often died out in a couple of days. But there could be a sting in the tail, he said.
"Exactly the same thing happened in 2010 with the Eyjafjallajokull volcano," Petford said. "The main eruption was in April, but in March there was a fissure eruption which was a precursor to the much larger eruption."
The Eyjafjallajokull event was particularly disruptive because it pushed ash up to precisely the elevation used by transatlantic aircraft, while prevailing winds propelled the cloud into European air space. The ash was also particularly sticky due to its chemical composition.
Petford said that if the current eruption subsided, scientists would be looking for signs of more quakes deeper under the volcano, which would suggest more magma was welling up, and for any swelling of the volcano that could be measured using GPS.
"Those are pretty clear evidence that large amounts of magma are being stored within the volcano and that's a good indication it will explode."
(Reporting by Simon Johnson, Anna Ringstrom, Niklas Pollard and Alistair Scrutton, editing by Mark Heinrich)