Mount Ibu, located on the island of Halmahera in North Maluku province, erupted at 11:11 am local time (0211 GMT) and sent a thick column of dark smoke and ash above the peak.
The volcano spewed an ash tower 1.5 kilometres (0.93 miles) above the peak, Indonesia's volcanology agency (PVMBG) said.
"Based on the results of visual and instrumental monitoring... Mount Ibu's activity level has been raised from level two to level three" of a four-tiered system, said PVMBG chief Hendra Gunawan in a statement Wednesday.
Authorities formed an exclusion zone between three and five kilometres around the volcano's crater.
Hendra urged nearby residents to wear face masks and glasses when doing outdoor activities and to prepare for falling volcanic ash.
Indonesia, a vast archipelago nation, experiences frequent seismic and volcanic activity due to its position on the Pacific "Ring of Fire".
Last month, Mount Ruang in North Sulawesi Province erupted more than half a dozen times, forcing thousands of residents of nearby islands to evacuate.
It erupted again last week and remains at the highest alert level of a four-tiered system.
All of the 800 or so residents of Ruang island have been permanently relocated.
The Sam Ratulangi International Airport in the city of Manado, located more than 100 kilometres (62 miles) from the crater, was shut for days because of volcanic ash. It has since re-opened.
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