REYKJAVIK (Reuters) - Iceland's Bardarbunga volcano registered one of its most powerful earth tremors yet on Wednesday while the sinking of its caldera raised concerns of an eruption and flooding, authorities said.

The caldera, the cauldron-like crater at the top of a volcano, had sunk by up to around 20 meters since last week as magma channeled through underground passages moves away from the volcano, Magnus Tumi Gudmundsson, geophysics professor at the University of Iceland, told public service broadcaster RUV.

The caldera covers about 80 square km and is covered by an ice cap that is 700 to 800 meters thick.

A cloud of abrasive ash from the Eyjafjallajokull volcano, in a different region of Iceland, closed much of Europe's air space for six days in 2010, stranding tens of thousands of passengers, after an eruption under the ice cap.

"We take this increased subsidence in the caldera of Bardarbunga volcano very seriously, due to a possible large eruption and glacial flood," said Vidir Reynisson, Department Manager at Iceland's Civil Protection Department.

The ash warning level for aviation remained at orange, the second-highest level on a five-color scale, after several brief hikes to the top red in recent weeks.

Lava continued to pour from fissures in the ground, but there was still none of the ash that could prove troublesome for airline traffic. The 5.5 magnitude earthquake happened at 0528 GMT (01:28 a.m. EDT) near the volcano, Iceland's Meteorological Office said.

"This is one of strongest earthquakes since Aug. 16 (when tremors began). There is a lot of activity in the area and approximately 70 earthquakes have been measured in the night," said IMO geologist Sigurlaug Hjaltadottir.

Lava from cracks around Bardarbunga has so far entered the surface on ice-free land, whereas an eruption under an ice cap may be explosive and produce an ash cloud that could disrupt aviation, as well as flooding due to melting of the ice.




(Reporting by Robert Robertsson; writing by Sven Nordenstam)