The Icelandic Met Office warned that a small eruption had taken place under the Dyngjujokull ice cap.
Seismic activity is continuing at the Bardarbunga volcano, about 30km away. Airspace over the site has been closed, but all Icelandic airports currently remain open, authorities say. A Europe-wide alert has also been upgraded. European air safety agency Eurocontrol said it would produce a forecast of likely ash behaviour every six hours.
Iceland's Eyjafjallajokull volcano erupted in 2010, producing ash that severely disrupted air travel. The red alert is the highest warning on the country's five-point scale. Flooding threatThe Icelandic Met Office said a team of scientists was flying across the region on Saturday afternoon to monitor seismic activity.
"The eruption is considered a minor event at this point," police said in a statement. "Because of pressure from the glacier cap, it is uncertain whether the eruption will stay sub-glacial or not."
24 aug. 07:09: 5,3 earthquake, 113km WNW of Hofn, Iceland, 5 km deep, at 64,686°,-17,351°