A volcano erupted for the second time in less than a month in southwest Iceland on 14 January.
The eruption began early on Sunday morning, a short while after the town was evacuated by authorities.
No lives are in danger, although infrastructure may be under threat, Iceland's President Gudni Johannesson said on social media site X, adding there had been no interruptions to flights.
The first eruption began at 8am when a crack opened in the ground about 450 metres from the town. Protective barriers of earth and rock pushed lava from the first fissure away from the town. However, a second crack that opened around midday on the outskirts of Grindavik had reached a size of about 100 metres by late afternoon, and rivers of lava engulfed homes.
At least three houses were engulfed by fire, live images from TV broadcaster RUV showed.
Iceland’s civil protection agency said it had raised its alert level to “emergency”, the highest on its three-point scale, meaning an event could cause harm to people, property, communities or the environment.
Officials are keeping a close eye on the nearby Svartsengi geothermal plant, the largest supplier of power and water to the Reykjanes peninsula.
According to Böðvar Sveinsson, a natural disaster expert at the Icelandic Meteorological Office, the eruption has subsided with a reduction in lava flow by the houses.
Besides, a search was called off on Saturday, 13 January, for a man who was believed to have fallen into a fissure in the town. Emergency services said they had done everything they could to restrict the danger to rescuers, but it was not considered justifiable to put their lives at risk.