This is possible mistaken reporting. There have been reporting of ash clouds or steam clouds off the coast during the evening of 7-August-2021. This would be in the volcano system Krýsuvík-Trölladyngja.
The ash cloud or steam cloud would indicate an activity off the coastline or possible eruption activity in the ocean. Explosive events like that appear a lot more clearly as harmonic tremor on SIL stations and according to news reports nothing has been seen so far in the harmonic tremor data. There have been no earthquake activity in the area where the clouds are supposed to have been seen.
The coast guard has been sent to this area, as they where nearby anyway. I don’t know if anything has been reported so far. The weather is fine in south Iceland and I don’t think there is a lot of ocean waves, but as this is the Atlantic ocean there can be ocean waves even if there is no wind, since the ocean waves can arrive from parts of the ocean with bad weather thousands of kilometres away.
If anything new is reported I am going to update this article or write a new one.