Vanuatu's Meterology and Geohazards Department has lowered the alert level for Ambae's volcano from level three to two.
It says the eruption is now confined inside the volcano Manaro Voui's crater lake with scientific analysis confirming activity is currently dropping.
The restricted risk area has also been reduced to within two kilometres of the active vent.
The department says volcanic activity now consists of emissions of white steam clouds and gas, which it says people will still be able to smell.
The volcano's threat level was raised to four on the five level scale for two weeks from September 22, when the eruption featured flying rocks, ash fall and acid rain
This prompted the mass evacuation of the island's 11,000 people.
Despite being returned to their island by the government, many people have now fled Ambae again at their own expense, as ash has ruined crops and contaminated water.