OSLO (Reuters) -A volcano erupted late on Monday in southwest Iceland, spewing lava and smoke across a wide area after weeks of intense earthquake activity, the country's Meteorological Office said, threatening a nearby town. Fearing a significant eruption on the Reykjanes peninsula, authorities last month evacuated the nearly 4,000 inhabitants of the fishing town of Grindavik and closed the nearby Blue Lagoon geothermal spa. "Warning: Eruption has started north of Grindavik by Hagafell," the Met Office said on its website, noting that the eruption began only a few kilometres from the town and cracks in the ground stretched toward the village located about 40 km (25 miles) south-west of Iceland's capital city Reykjavik.