The eruption began at about 0600 GMT in the Holuhraun lava field, north of the Vatnajokull glacier, the Civil Defence Authority said.
Initial reports said the eruption was not producing ash, which could potentially harm airplane engines. Bad weather was reported in the area, affecting visibility. However, all the country's airport remained open, spokesman Eggert Mangusson told dpa.
The restriction area covers airspace up to an altitude of 6,000 feet(1.8 kilometres), which does not affect commercial flights, spokesman Fridthor Eydal of aviation authority ISAVIA said.
DPA