Two craters of a volcano on the Reykjanes peninsula spewed out the sulphur-packed cloud on Wednesday.
The thick haze has left the capital Reykjavik and the southwest of the country in a pollution red alert, the highest level in Iceland's monitoring system.
Hylnur Arnason of the Icelandic Energy and Environment Agency said that volcanic eruptions normally cause air pollution, mainly from the sulphur dioxide that is emitted. The gas becomes sulfate in the atmosphere, creating a volcanic fog.
"It's completely misty in large parts of the country," said Arnason.
"Usually in Iceland we have lots of wind, which would carry the pollution away, but right now we don't," the expert added. "Now it's kind of just sitting over the whole country."
Arnason said the gas was not toxic but could be an "irritant".
The environment agency has recommended that vulnerable people should remain at home and take precautions against the pollution. The wind was expected to start strengthening again late Monday.
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