Hundreds of flights were grounded Tuesday in Sydney, Melbourne, Adelaide and Canberra as the Chilean ash cloud returned to Australian airspace with a vengeance.

But the threat of prolonged disruption eased later in the day, with major airlines set to restart services early Wednesday, ahead of schedule, as the plume apparently pushed out towards the Tasman sea.

The cloud, created by the eruption of the Puyehue volcano high in the Andes more than two weeks ago, looped the globe and made its way back Down Under to wreak fresh havoc.

State broadcaster ABC said the travel plans of more than 120,000 people had been thrown into disarray -- with an industry group saying it was Australia's worst air travel disruption for more than 20 years.

National flag carrier Qantas suspended services to and from the South Australian capital Adelaide as well as Canberra and Sydney -- Australia's busiest airport -- although several overseas airlines continued to operate.

Qantas' discount airline Jetstar also called off Adelaide and Sydney flights on Tuesday while Tiger Airways grounded its entire fleet, with no services anywhere.

"The ash cloud is denser and larger than that which caused widespread disruption to flights last week," said Airservices Australia, adding that the plume was hovering between 20,000 and 40,000 feet (6-13 kilometres).

Initially Airservices Australia said the cloud was likely to linger, causing days of delays for travellers, but by late Tuesday evening airlines said they would resume their domestic, and delayed international, schedules on Wednesday.

Virgin Australia, which had suspended flights from Adelaide, Canberra, Sydney and Melbourne, gave hope to beleaguered travellers, saying it would restart flights at the cities on Wednesday following updated weather advice.

"The latest forecast from the Bureau of Meteorology has shown that the ash plume is now moving into the Tasman and will soon no longer affect this airspace," the airline said in a statement on its website late Tuesday, adding that the situation could change overnight.

Qantas, which had previously braced for disruption deep into Wednesday, said domestic flights from Adelaide would start at 5:00 am local time, with services due to resume at the other major cities throughout the day.

All international flights into and out of Sydney and Melbourne were still under review, a statement on its website said, with several re-routed flights yet to reach their destination.

Ash poses a significant threat to aircraft because once sucked into engines it can be transformed into molten glass by the high temperatures and potentially cause an engine to fail.

John Lee, chief executive of Tourism and Transport Forum, an industry body, said the ash had caused the largest disruption to Australia's aviation industry since a pilots' strike in 1989.

"We anticipate the total impact to the tourism industry will be something over Aus$10 million. It could be as high as Aus$13 or Aus$14 million but it's probably around Aus$11.5 million per day," Lee told AFP.

"It is a very substantial business disruption."

Though the ash had circled the globe meteorologists said it was still clearly visible on satellite images and was moving at an altitude where aircraft generally cruise.

"It is the same cloud that has gone right around the world. It is still dense and it is still hazardous to aviation," said a spokesman at the Darwin Volcanic Ash Advisory Centre.

The cloud first entered Australian and New Zealand airspace just over a week ago, causing some airlines to ground all flights to affected areas while others chose to divert their planes under and around the plume.

Flights were also affected across Argentina and Uruguay.

The Volcanic Ash Advisory Centre's director Andrew Tupper said the plume was a rare occurrence and a third loop back to Australia was not likely.

"A third time round would be unprecedented," he said.

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