The National Board for Disaster Management raised the alert to level four from 06:00 local time (22:00 GMT Sunday) because of "the possibility and imminent risk of disaster".
The volcano was seen emitting "continuous ash puffs" occasionally accompanied by "explosive eruptions" and "weak booms" that could be heard 12km (7 miles) away from the summit.
Media captionTimelapse footage shows ash rising into the sky, disrupting flights
Geologist Mark Tingay of the University of Adelaide told the BBC that Mount Agung now appears to be entering the next phase with a magmatic eruption, where the glow of lava is visible from the crater.
But he added that as eruptions are difficult to predict, it was "very hard to tell" how the situation would develop. "These eruptions can be quite large and extensive and violent, but this could also be a relatively minor eruption over time."
He added that Indonesian authorities had made preparations for an eruption for months, and said they appeared "extremely well prepared", with the situation "well under control".
Should tourists be worried?
The main tourist stretch of Kuta and Seminyak is about 70km (43 miles) from the volcano, far beyond the exclusion zone.
Airport authorities said 445 flights had been cancelled, affecting 59,000 travellers, while Indonesia's national hotel association said that stranded tourists staying at member hotels could stay one night for free.
China (statement in Chinese) advised its citizens to be "cautious" if travelling to Bali.
The airport on neighbouring island Lombok reopened on Monday morning after it was shut briefly.
Image copyrightHOLLY PELHAMImage captionFlights were cancelled at Ngurah Rai airport on Monday
How are locals coping?
Authorities have widened the exclusion zone to a 10km (6 mile) radius from the volcano, and have ordered people in the area to evacuate.
On Monday, officials said about 100,000 residents needed to leave, but so far only 40,000 have done so.
A spokesman for Indonesia's disaster agency, Sutopo Purwo Nugroho, said that some people within the exclusion zone did not leave because the area was not touched the last time it erupted - more than 50 years ago.
The volcano first began belching thick gas last week.
Officials have been distributing masks for local residents, as ash rains down in the vicinity.
Anna Baranova, who works with non-governmental organisation Kopernik that is helping evacuees, said her group was trying to bring in better masks and possibly goggles.
"There's some effort to distribute information and also solar powered TV units which will broadcast information about the evacuation to the camps, should the electricity go out if there's an eruption," she told the BBC.
Image copyrightREUTERSImage captionOfficials said the volcano has been emitting "continuous ash puffs"
Lahars, also known as "cold lava", are slurries of rock fragments mixed with water, and have been spotted in fields and rivers near the volcano.
Mr Nugroho warned that lahars may increase due to heavy rain and as Mount Agung continues to emit pyroclastic material.
Media captionBali volcano: Warning over dangerous mud flows
Authorities first issued warnings of an imminent eruption and raised the alert to the highest level two months ago, after detecting heightened volcanic activity.
Following mass evacuations, some islanders returned to their homes in October when the alert level was lowered with a decrease in activity.
According to official estimates, the holiday island lost at least $110m (£83m) in tourism and productivity during that major evacuation.
Is this common for Indonesia?
The last time Mount Agung erupted, in 1963, more than 1,000 people died.
Indonesia sits on the Pacific "Ring of Fire" where tectonic plates collide, causing frequent seismic and volcanic activity. It is home to more than 130 active volcanoes.
Media captionSurvivors of the 1963 eruption on the last time Mount Agung erupted
Scientists monitoring around the clock
By Jonathan Amos, BBC science correspondent
No-one can really say at this stage how things will turn out. The volcano might dampen down or the activity could evolve into a very big eruption.
Scientists have a network of seismometers around Agung that allow them to follow its rumblings, which give them clues as to what is going on inside. This will be complemented by gas detectors. Again, this gives the researchers insights into the physical processes in play.
On top of that the scientists have access to satellite observations. Already these have detected an increase in sulphur dioxide emissions. Radar spacecraft in particular are taking a close look at Agung. They can sense any subtle changes in the shape of the volcano that might indicate a very large volume of magma is moving closer to the surface.
It is complex work but the experts in this field are relatively convinced that a slow uplift on the northern flank has been going on for some time. It may come to nothing, but high-resolution radar data is now being studied to see if more pronounced changes are occurring.
Keep these in mind as you contemplate the direction of the American government over the past 50 years and especially since the Obama election.
The Goals of Communism
(as read into the congressional record January 10, 1963, from "The Naked Communist" by Cleon Skousen)
1. U.S. acceptance of coexistence as the only alternative to atomic war.
2. U.S. willingness to capitulate in preference to engaging in atomic war.
3. Develop the illusion that total disarmament of the United States would be a demonstration of moral strength.
4. Permit free trade between all nations regardless of Communist affiliation and regardless of whether or not items could be used for war.
5. Extension of long-term loans to Russia and Soviet satellites.
6. Provide American aid to all nations regardless of Communist domination.
7. Grant recognition of Red China. Admission of Red China to the U.N.
8. Set up East and West Germany as separate states in spite of Khrushchev's promise in 1955 to settle the German question by free elections under supervision of the U.N.
9. Prolong the conferences to ban atomic tests because the United States has agreed to suspend tests as long as negotiations are in progress.
10. Allow all Soviet satellites individual representation in the U.N.
11. Promote the U.N. as the only hope for mankind. If its charter is rewritten, demand that it be set up as a one-world government with its own independent armed forces. (Some Communist leaders believe the world can be taken over as easily by the U.N. as by Moscow. Sometimes these two centers compete with each other as they are now doing in the Congo.)
12. Resist any attempt to outlaw the Communist Party.
13. Do away with all loyalty oaths.
14. Continue giving Russia access to the U.S. Patent Office.
15. Capture one or both of the political parties in the United States.
16. Use technical decisions of the courts to weaken basic American institutions by claiming their activities violate civil rights.
17. Get control of the schools. Use them as transmission belts for socialism and current Communist propaganda. Soften the curriculum. Get control of teachers' associations. Put the party line in textbooks.
18. Gain control of all student newspapers.
19. Use student riots to foment public protests against programs or organizations which are under Communist attack.
20. Infiltrate the press. Get control of book-review assignments, editorial writing, policymaking positions.
21. Gain control of key positions in radio, TV, and motion pictures.
22. Continue discrediting American culture by degrading all forms of artistic expression. An American Communist cell was told to "eliminate all good sculpture from parks and buildings, substitute shapeless, awkward and meaningless forms."
23. Control art critics and directors of art museums. "Our plan is to promote ugliness, repulsive, meaningless art."
24. Eliminate all laws governing obscenity by calling them "censorship" and a violation of free speech and free press.
25. Break down cultural standards of morality by promoting pornography and obscenity in books, magazines, motion pictures, radio, and TV.
26. Present homosexuality, degeneracy and promiscuity as "normal, natural, healthy."
27. Infiltrate the churches and replace revealed religion with "social" religion. Discredit the Bible and emphasize the need for intellectual maturity which does not need a "religious crutch."
28. Eliminate prayer or any phase of religious expression in the schools on the ground that it violates the principle of "separation of church and state."
29. Discredit the American Constitution by calling it inadequate, old-fashioned, out of step with modern needs, a hindrance to cooperation between nations on a worldwide basis.
30. Discredit the American Founding Fathers. Present them as selfish aristocrats who had no concern for the "common man."
31. Belittle all forms of American culture and discourage the teaching of American history on the ground that it was only a minor part of the "big picture." Give more emphasis to Russian history since the Communists took over.
32. Support any socialist movement to give centralized control over any part of the culture--education, social agencies, welfare programs, mental health clinics, etc.
33. Eliminate all laws or procedures which interfere with the operation of the Communist apparatus.
34. Eliminate the House Committee on Un-American Activities.
35. Discredit and eventually dismantle the FBI.
36. Infiltrate and gain control of more unions.
37. Infiltrate and gain control of big business.
38. Transfer some of the powers of arrest from the police to social agencies. Treat all behavioral problems as psychiatric disorders which no one but psychiatrists can understand.
39. Dominate the psychiatric profession and use mental health laws as a means of gaining coercive control over those who oppose Communist goals.
40. Discredit the family as an institution. Encourage promiscuity and easy divorce.
41. Emphasize the need to raise children away from the negative influence of parents. Attribute prejudices, mental blocks and retarding of children to suppressive influence of parents.
42. Create the impression that violence and insurrection are legitimate aspects of the American tradition; that students and special-interest groups should rise up and use united force to solve economic, political or social problems.
43. Overthrow all colonial governments before native populations are ready for self-government.
44. Internationalize the Panama Canal.
45. Repeal the Connally reservation so the United States cannot prevent the World Court from seizing jurisdiction over nations and individuals alike.
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