A flow of red-hot lava on Sunday reached the outskirts of Grindavik, a fishing town of some 4,000 residents, setting three houses ablaze but causing no harm to people who had been evacuated for a second time since November.
Live video footage on Tuesday morning no longer showed signs of molten rock erupting from the ground, even as experts warned that new fissures could emerge at short notice.
Grindavik resident Hrannar Jon Emilsson watched his almost-finished house burn down on live TV after the volcano erupted on Sunday.
"You sit and watch the news showing everything go up in smoke," Emilsson told Icelandic independent broadcaster Channel 2.
"Last week I asked the electricians to start their work so that they could finalise their part of the work with the view of arranging for moving in before springtime. Things change fast," he said.
The Icelandic Meteorological Office (IMO) late on Monday said new cracks could still open in the earth's surface without warning, adding that it was difficult to assess how long the eruption would last.
It was the second eruption on the peninsula of Reykjanes in four weeks, and the fifth since 2021.
The Icelandic Civil Defence, the IMO and other experts are due to meet later on Tuesday to discuss the situation.
Located between the Eurasian and North American tectonic plates, among the largest on the planet, Iceland is a seismic hot spot, with more than 30 active volcanoes.
