
The Svartsengi power plant, which provides electricity and water to thousands of people on the peninsula, has also been evacuated.
Barriers have been built up around the facility, as well as Grindavik and the Blue Lagoon, to try to protect them from lava flows caused by the ongoing eruptions.
Keflavik international airport said it was operating as usual and did not expect to be affected.
Officials reported “intense earthquake activity” prior to Wednesday’s eruption.
Geophysicist Ari Trausti Gudmundsson said scientists had been expecting a new eruption for some time.
Most of the 4,000 residents of Grindavik were permanently evacuated in November, prior to the eruptions in December, January, February and March.
Lava flowed into its streets during the January eruption, engulfing three homes.
A few residents had since returned to live in neighbourhoods less at risk.
Iceland has 33 active volcano systems and sits over what is known as the Mid-Atlantic Ridge, the boundary between two of the largest tectonic plates on the planet.
The last time the Reykjanes Peninsula had a period of volcanic activity was 800 years ago – and the eruptions continued for decades.
This is now the eighth eruption since 2021, and scientists believe the area is entering a new volcanic era that could last for decades or even centuries.