Teams monitoring Iceland's Bardarbunga volcano have found evidence of a possible underground eruption as powerful earthquakes continue to shake the area, Icelandic authorities said Thursday.

Scientists flying over the area on Wednesday discovered a four to six kilometre (2.5-4 mile) line of giant craters or cauldrons -- 10 to 15 metres deep and one kilometre wide -- on the Vatnajoekull glacier which covers the giant volcano.

"The cauldrons have been formed as a result of melting, possibly a sub-glacial eruption," the Icelandic Met Office said in a statement.

The alert level for Bardarbunga was downgraded from red to orange on Sunday when the Met Office retracted its claim that an eruption had taken place under the ice.

Tremors continued on Thursday with an 5.0 magnitude earthquake just after 0800 GMT, far weaker than the strongest eruption of 5.7 magnitude recorded on Tuesday.

Bardarbunga volcano is part of Iceland's largest volcanic system and a major eruption could signal a replay of the global travel chaos triggered when another Icelandic peak Eyjafjoell blew four years ago, creating a massive ash cloud across Europe.

Last week Iceland evacuated areas close to the volcano following an uptick in seismic activity with the strongest earthquakes recorded in the region since 1996.

Iceland's most active sub-glacial volcano Grimsvotn erupted in 2011, forcing the country to temporarily shut its airspace and sparking fears of a repeat of the Eyjafjoell flight chaos