Bali, famous for its surf, beaches and temples, attracted almost 5 million visitors past year, but business has slumped in areas around the volcano since September when Agung's volcanic tremors began to increase.
"Already, it's erupted", PVMBG head Gede Suantika said.
He said there hasn't been an increase in seismic tremors from the volcano.
However, "people in a radius of six kilometers from the mountain should evacuate the premises", especially in the district of Karangasem, the nearest to the volcano, said the volcanologist Gede Suantika.
"Smoke is observed with medium pressure with a thick grey colour and with a maximum height of about 1km above the peak", local authorities said.
More than 140,000 people evacuated the region when the alert was at its highest - but that number has now dropped to about 30,000 people.
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Mount Agung last erupted in 1963, killing nearly 1,600 individuals.
The official said the eruption was 'phreatic, ' which occurs when water beneath the ground or on the surface is heated by magma. The alert level was lowered to three out of four on 29 October.
Flights have not been affected so far, but officials have estimated that concerns about an eruption over the past few months have cost the island at least $110 million in lost tourism and productivity as many locals moved to shelters.
Indonesia is located on the Pacific Ring of Fire, and area of high volcanic and natural disaster activity due to active tectonic plates beneath the earth's surface.
There have been no reports of flight cancellations, although Singapore's Ministry of Foreign Affairs is urging its citizens not to travel to Bali unless it is completely essential.