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Youtube live cam link of Bárðarbunga eruption. Please use this link not Mila Iceland to preserve the bandwidth that Icelanders need to use.

   Warning: A fissure eruption has started north of Dynjujökull Alert on web page of Iceland Met Office. Link not provided to avoid overloading their servers.

Lava is visible on the night time view from the live cam of Bárðarbunga. The cluster of shallow quakes shows where it probably is on the map. Multiple earthquakes are clustered (can't see on this small image) where the middle red dot is located north of the ice.
Close up showing likely eruption location indicated by a cluster of small earthquakes. According to official reports it is in the Holuhraun lava field north of the large glacier.
Close up of earthquake swarm indicating eruption location.
The cluster of small earthquakes shows the location of the eruption. This location is favorable for a mild eruption because it is off the glacier and has had mild eruptions before.
Based on a grouping of recent earthquakes, combined with the image on the live cam I am estimating that lava is flowing from the north end of the rift zone north of the large glacier. So far this eruption appears very mild on camera. I have examined the developing earthquake pattern. There appears to be a cluster of earthquakes at 15 km deep, so there's apparently a deep lower crustal area where magma is moving and breaking the rock. There's also one earthquake that is located just below 20km deep, but it isn't a verified depth so it's unreliable.

We don't know what's going to happen next, but so far so good. We have no way of telling what is going on under the glacier at this time. Apparently this eruption is in a lava field that has had quiet flow basalts in the past, but we have no way of telling how this situation will evolve. This appears to be erupting away from Askja's caldera, so an eruption of Askja is not an issue at this time. Iceland's authorities recently raised the warning level for Askja to yellow because of recent earthquakes near the caldera, but this eruption could slow the advancement of the active magma bearing dyke in that direction, at least, for now.
Image of the beginning of the eruption at night overlain on daytime image to show where the eruption began in reference to visible features. Again, for the record, this is not a true image.

Overlaid day/night images showing where Iceland eruption started early morning 29Aug14 local time.
Nightime image of eruption merged with daytime image looking at Bárðarbunga.
The largest concern at this time is of flooding because there was already evidence of melting under the glacier. It is possible that lava is erupting under the glacier at this time but we can't see it. The met office's manually located earthquakes show events under the glacier just after midnight on the 29th. We will soon have a better idea of what's happening under the ice because the melt water will show if there's an eruption there.
A sudden jump in harmonic tremor activity at the far right of the record is indicative of a possible eruption at Bárðarbunga.
Below the glowing orange lava is a Youtube 4D representation of the earthquake sequence leading up to the eruption.

Update & confirmation from the Iceland Met office midday 29Aug14

This phase of the eruption is over. Continued high levels of seismic activity indicates that rifting and dyke emplacement continues below the surface.

29th August 2014 12:20 - from the Scientific Advisory Board

Scientists from the Icelandic Met Office and the Institute of Earth Sciences, and representatives of the Civil Protection in Iceland, attend the meetings of the Advisory Board.

Conclusions of the Scientific Advisory Board:
At 00:02 UTC signs of a lava eruption were detected on web camera images from Mila. The web-camera is located at Vaðalda, north-east of the eruption site.
Around midnight, weak signs of increased tremor were apparent on IMO's seismic stations near to the eruption site.
At 00:20 UTC scientists in the field from the Icelandic Met Office, Institute of Earth Sciences and Cambridge University confirmed the location of the eruption.
The eruption occurred on an old volcanic fissure on the Holuhraun lava field, about 5 km north of the Dyngjujökull ice margin. The active fissure was about 600 m in length.
A small amount of lava drained from the fissure and by around 04:00 UTC, lava flow is thought to have stopped.
According to seismic data and web-camera imagery, the eruption peaked between 00:40 and 01:00 UTC.
At the beginning of the eruption, seismic activity decreased, although seismicity has since returned to levels observed in recent days.
Aerial observations by the Icelandic Coastguard show that only steam is rising from the site of the lava eruption.
There are no indications that the intensity of the activity declining.
At this moment it is unclear how the situation will develop. However, three scenarios are considered most likely:
The migration of magma could stop, resulting in a gradual reduction in seismic activity and no further eruptions.
The dike could reach the Earth's surface north of Dyngjujökull causing another eruption, possibly on a new fissure. Such an eruption could include lava flow and (or) explosive activity.
The intrusion reaches the surface and an eruption occurs again where either the fissure is partly or entirely beneath Dyngjujökull. This would most likely produce a flood in Jökulsá á Fjöllum and perhaps explosive, ash-producing activity.
Other scenarios cannot be excluded. For example, an eruption inside the Bárdarbunga caldera.

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