A volcano erupted in southern Chile yesterday, triggering earth tremors and spewing a cloud of ash three kilometres into the air that prompted the evacuation of hundreds of people from the remote area, officials said.

Residents said ash fell over the picturesque Patagonian town of Chaiten, 1,220 kilometres south of the capital Santiago and just 10 kilometres from the volcano.

Trucks with drinking water were dispatched to the area after ash tainted water supplies, authorities said. Some schools were closed and hospitals treated people for irritated eyes and breathing difficulties.

A boat was sent to the region to evacuate hundreds of people, many of whom live scattered on small islands that make up southernmost Chile.

"We felt the movements and can see the ash falling in town," Sara Ruiz, a receptionist at municipal offices in Chaiten said by telephone.

The national emergency office initially identified the source of the ash as the volcano Michimahuida, but later said it was Chaiten, which has the same name as the town. The office called the event an eruption.

Local television broadcast aerial footage showing ash cloaking mountain ridges. Visibility was poor, and in some areas thick ash settled on the ground and caked vehicles.

"We haven't been able to sleep. There have been many tremors," one woman told local television. "We are very afraid."

In Santiago, President Michelle Bachelet appealed for calm.

"Chile is a volcanic country, and I want to say that we are working and coordinating with all our might at a local and national level and call for calm," she said.

Across the nearby border in Argentina, authorities in Chubut province asked residents to avoid rubbing their eyes and to wear glasses and long sleeves to avoid ash making contact with skin.

Of Chile 2,000 volcanoes, some 500 are potentially active, according to scientists. About 60 have erupted over the centuries, and 40 could do so, they say.

Chile is home to two of Latin America's most active volcanoes - Villarica and Llaima.

Llaima, about 700 kilometres south of Santiago, erupted on New Year's Day, spewing ash and molten lava and forcing the evacuation of dozens of tourists and staff from a wilderness park.

It also belched ash in February and lava crept down its slopes.