Mount Tavurvur, which destroyed the town of Rabaul when it erupted simultaneously with nearby Mount Vulcan in 1994, rumbled to life early in the morning on the tip of the remote island of New Britain.
"The eruption started slow and slowly developed in a Strombolian (low level) eruption with incandescent projections accompanied by explosion noises and ongoing loud roaring and rumbling noises," the Rabaul Volcanological Observatory said.
The Australian government issued a warning against travelling to the area.
There were no immediate reports of injuries or damage.
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The Volcanic Ash Advisory Centre in Darwin said the ash cloud was drifting southeast.
"The eruption was to 60,000 feet, which is flight level. There was two hours of high-level eruption," an official from the centre, Cyndee Feals, told AFP.
"The ash was initially blowing to the southwest but has now turned to the southeast and we expect it to clip the edge of Australian airspace later today, but we don't expect ash over Australia."
Australian flag carrier Qantas said three flights had been re-routed to avoid the ash cloud in the east of PNG.
"Flight paths between Sydney and (Tokyo) Narita, and Sydney and Shanghai have been altered as a result of the volcanic ash cloud over Rabaul in eastern Papua New Guinea," a spokeswoman said.
"QF21, QF22 and QF130 will now fly over central Papua New Guinea to avoid the cloud."
She added that it would only add 10 or so minutes to the journey.
"Police have cautioned people not to panic but remain indoors and listen to local Radio East New Britain for updates," the PNGloop website said.
"The situation has eased except for the rumbling and roaring as rocks are shot into the air."
Its correspondent in Rabaul added that "all shops are closed. The provincial disaster officials are in town".