By Robert Robertsson and Simon Johnson

REYKJAVIK/STOCKHOLM (Reuters) - Iceland cut its ash warning level for aviation to orange from red on Sunday, saying a fresh fissure eruption in Iceland's Bardarbunga volcano system was not creating ash.

Iceland's largest volcanic system, which cuts a 190 km long and up to 25 km wide (118 miles by 15.5 miles) swathe across the North Atlantic island, has been hit by thousands of earthquakes over the last two weeks and scientists have been on high alert.

In 2010, an ash cloud from the Eyjafjallajokull volcano, in a different region of Iceland, closed much of Europe's air space for six days.

The eruption, which started early on Sunday morning, spewed lava more than 50 meters in the air and is close to an earlier eruption that continued for a few hours early on Friday.

The Met Office raised its ash alert level to red earlier on Sunday but cut it after monitoring the eruption during the day.

"No ash has been detected," the Icelandic Meteorological Office said in a statement. "The Aviation Colour Code for Bardarbunga has therefore been reset to orange."

Red is the highest level on a five-color scale and it indicates that an eruption is imminent or under way, with a risk of spewing ash. Orange is the next highest level.

A three nautical mile restricted flight area around the volcanic activity set by the Icelandic Transport Authority has been canceled.

No flight restrictions are in effect as a result of the volcanic eruption.

Icelandic authorities said the latest fissure eruption started in Holuhraun north of Dyngjujokull glacier at around 12 a.m. ET.

Scientists estimate the fissure to be at least 1.5 kilometers long. The lava is estimated to be six to eight meters thick and flowing at a rate of about 1,000 cubic meters per second.

"The eruption is producing 50- to 60-metre high lava fountains," Armann Hoskuldsson, a geologist at the University of Iceland told Reuters.

Two days ago, a 600 meter-long fissure in a lava field north of the Vatnajokull glacier, which covers part of the Bardarbunga system, erupted.

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That eruption only lasted for a few hours and was not in an area covered by ice and did not produce ash. The risk of an ash cloud is highest when there is a sub-glacial eruption as melt water and magma mix to produce ash particles.

The new eruption is very close to Friday's and is not under the glacier.

"It is almost in the same location. The crack has only extended a little bit further to the north," Magnusson at the National Crisis Coordination Centre said.

Last week, scientists estimated around 400 million cubic meters of lava had flowed out from under the volcano in a long dike. The eruption on Friday was at its tip.

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(Reporting by Robert Robertsson; Editing by Hugh Lawson and Stephen Powell)