Teams monitoring Iceland's Bardarbunga volcano have found evidence of a possible underground eruption as powerful earthquakes continue to shake the area, Icelandic authorities said this afternoon.

Scientists flying over the area yesterday discovered a 4-6km line of giant craters or cauldrons, 10-15m deep, and 1km wide, on the Vatnajoekull glacier which covers the giant volcano.

"The cauldrons have been formed as a result of melting, possibly a sub-glacial eruption," the Icelandic Met Office said in a statement.

The alert level for Bardarbunga was downgraded from red to orange on Sunday when the Met Office retracted its claim that an eruption had taken place under the ice.

Tremors continued today with an 5.0 magnitude earthquake just after 9am Irish time, far weaker than the strongest eruption of 5.7 magnitude recorded on Tuesday.

Bardarbunga volcano is part of Iceland's largest volcanic system and a major eruption could signal a replay of the global travel chaos triggered when another Icelandic peak Eyjafjallajokull blew four years ago, creating a massive ash cloud across Europe.

Last week Iceland evacuated areas close to the volcano following an increase in seismic activity with the strongest earthquakes recorded in the region since 1996.

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 Eyjafjallajokull flight chaos