NGANCAR, Indonesia, Nov 8 (Reuters) - Authorities have lowered the alert level on Indonesia's steaming Mount Kelud volcano because of a decline in its activity and advised people to return to their homes, a government official said on Thursday.

Indonesia's volcanology centre had raised the alert status of the deadly volcano on the densely populated Java island to the highest level about two weeks ago and asked people living on or near its slopes to evacuate as an eruption appeared imminent.

"The alert is downgraded to the second highest due to less intense activity," said Umar Rosadi, a volcanology centre official monitoring Kelud.

"People are advised to return to their homes but it isn't impossible that there could be a sudden increase in the intensity of activities. People must be ready to be evacuated again."

An estimated 350,000 people live within 10 km (6 miles) of the volcano, which is about 90 km southwest of Surabaya, Indonesia's second-largest city and one of its busiest airports.

The 1,731-metre (5,700-foot) volcano spewed ash about 500 metres into the air on Sunday, a day after confusion over whether it had already started erupting.

Officials at the volcanology centre said on Saturday that the volcano had erupted while hidden by heavy cloud cover, but later they said that an eruption had not in fact taken place.

Kelud, also known as Kelut, means "sweeper" in Javanese, a reference to the fact that when it erupts, it sweeps away everything in its path.

When it last erupted in 1990 at least 30 people were killed, while about 5,000 died in 1919 when it spewed scalding water from its crater lake.

Indonesia has the highest number of active volcanoes of any country, sitting on a belt of intense seismic activity known as the "Pacific Ring of Fire". (Reporting by Heri Retonwati; Writing by Sugita Katyal; Editing by Alex Richardson)

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