- Aerial video of the area shows a new 3km-long (1.8 mile) fissure - a crack in the Earth's surface - spraying streams of lava high up into the air.
- Three homes in the town were destroyed last month when molten lava spewed through two other fissures.
A state of emergency has been declared in Iceland after lava from a volcanic eruption damaged key hot water pipes.
Thousands of people in the Reykjanes peninsula have been urged to limit their hot water and electricity use as the pipes could take days to fix.
There are concerns that other crucial pipelines close to the Svartsengi power station could be affected if the lava flow does not ease soon.
It is the third such eruption on the peninsula since December.
Aerial video of the area shows a new 3km-long (1.8 mile) fissure - a crack in the Earth's surface - spraying streams of lava high up into the air.
Smoke illuminated by the lava could be seen in the capital, Reykjavik - roughly 40km (25 miles) away.
The Blue Lagoon, one of Iceland's top tourist attractions, has been forced to close again due to the lava flows. It is expected to remain closed on Friday.
Iceland's Department of Civil Protection and Emergency Management said it was trying to figure out how to guarantee the hot water supply to more than 20,000 people who have reportedly had their access disrupted.
Volcanologist Dr Evgenia Ilyinskaya told the BBC that while the Svartsengi power station itself is protected to some extent by barriers that have been built around it, pipes are providing hot water to a further 30,000 people across the peninsula that are at more immediate risk.
However, she said the hope was that the speed of the lava flow would soon drop off, in a similar way to earlier eruptions, and the pipeline would be undamaged.
According to the Icelandic Meteorological Office, the strength of the eruption is decreasing.
All of the recent eruptions in southern Iceland have involved lava pouring from fissures, rather than volcanic explosions that cause ash to be sent into the atmosphere - such as the country saw in 2011.
Dr Ilyinskaya, an associate professor of volcanology at Leeds University, said Thursday's eruption was in the same general area as one in December - meaning it is unlikely to cause more damage to the abandoned town of Grindavik.
Three homes in the town were destroyed last month when molten lava spewed through two other fissures.
Scientists believe these could continue for years and some of the around 4,000 residents of Grindavik have told the BBC they do not expect to ever return to live in their homes.
Iceland has 33 active volcano systems and sits over what's known as the Mid-Atlantic Ridge, the boundary between two of the largest tectonic plates on the planet.