Iceland removed a ban on air traffic around the nation's largest volcanic system on Sunday after fears of an imminent eruption subsided.

The Icelandic Met Office said there had not been a small, subglacial eruption on Saturday, as previously announced, and lowered the alert over the Bardarbunga volcano from red to orange.

"Presently there are no signs of ongoing volcanic activity," the IMO said on its website.

A major explosion at the Bardarbunga volcano, located under a glacier, could signal a replay of the global travel chaos triggered when another Icelandic peak blew four years ago, creating a massive ash cloud across Europe.

The red alert level put in place on Saturday led to the closure of airspace in the affected area, although all airports in the country remained opened.

"All restrictions on aviation have been cancelled," Icelandic police said in a statement.

Seismic activity remains high in the area, with more than 700 tremors recorded during the night.

Early on Sunday, the strongest earthquakes of the current seismic cycle shook Bardarbunga.

They were listed on the Met Office's website with intensities of 5.3 and 5.1 on the Richter scale, the highest registered in the area since 1996.

Earlier this week, authorities evacuated tourists and hikers from the area around the volcano, which remained closed on Sunday afternoon, according to the police.

The eruption of Eyjafjoell, a smaller volcano, in April 2010 caused travel mayhem, stranding more than eight million people in the widest airspace shutdown since World War II.

Iceland's most active sub-glacial volcano Grimsvotn erupted in 2011, forcing the country to temporarily shut its airspace and sparking fears of a repeat of the Eyjafjoell flight chaos.

Iceland is home to more than 100 volcanic mountains, some of which are among the most active in the world.