(Corrects spelling of geologist's name in third paragraph)
STOCKHOLM, Aug 26 (Reuters) - A magnitude 5.7 earthquake hit Iceland's Bardarbunga volcano overnight, the biggest since tremors began 10 days ago, but there is still no sign of an eruption, the country's Meteorological Office said on Tuesday.
Intense seismic activity at Iceland's largest volcano system has raised worries that an eruption could cause another ash cloud like that from the Eyjafjallajokull volcano in 2010 that shut down much of Europe's airspace for six days.
"There was one event during the night ... it was a magnitude 5.7 (quake), the largest in this series," Palmi Erlendsson, a geologist at the Met Office said.
"Activity is still deep and we see no signs of anything close to the surface."
On Sunday, Iceland lowered its warning code for possible volcanic disruption to the aviation industry to orange from red, the highest level on the country's five-point alert system, after concluding that seismic activity had not led to a volcanic eruption under the glacier.
Red alert indicates an eruption is imminent or underway with a significant emission of ash likely.
Met Office scientists believe the earthquakes are a result of magma flowing out from under the crater of the volcano, causing a change in pressure.
The migration of magma -- estimated at around 300 million cubic metres (10.6 billion cubic feet) along a 35 kilometre (21 miles) dyke by Icelandic scientists on Monday -- could stop. That should lead to a gradual reduction in seismic activity.
But the magma could also reach the surface away from the glacier. This would probably lead to an eruption, but with limited explosive, ash-producing activity, scientists said.
If the magma reaches the surface under the glacier, that would lead to flooding and possibly an explosive eruption and ash production, they added. An eruption inside the Bardarbunga caldera is also possible, but scientists say less likely than the other scenarios.
"We still can't say whether it will cease, continue like this for a while or erupt. It's impossible to say," Erlendsson said.
There have been thousands of smaller quakes over the past week at Bardarbunga. Areas around the volcano, in the centre of the North Atlantic island nation, have been evacuated.
Bardarbunga is in a different range to Eyjafjallajokull. (Reporting by Simon Johnson; Editing by Crispian Balmer)
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