All 11,000 people on the island of Ambae -- in the Pacific archipelago's north -- will be evacuated by October 6, Prime Minister Charlot Salwai's office said.
Vanuatu's National Disaster Management Office (NDMO) said it was the first time in living memory that an island's whole population had been moved because of volcanic activity.
"We have the shipping capacity here in Vanuatu to move 11,000 people, it will be mainly commercial vessels moving people to neighbouring islands," NDMO director Shadrack Welegtabit told AFP.
Most of Ambae's population is already sheltering in evacuation centres on the island after the Manaro Voui volcano rained rocks and ash on their villages.
It sent up a plume of steam and ash over the weekend, prompting authorities to declare a state of emergency and raise the volcano's threat level to four, the second highest rating.
"We have already moved people out of the high ground to safe areas in the west and the east (of Ambae island)," Welegtabit said.
"The likelihood is that it will go to level five... (so) we have to get people off the island."
The volcano, also known as Aoba and Lombenben, has three lakes in its crater and last erupted in late 2005.
On that occasion about 5,000 people were evacuated and it was three months before the volcano settled enough for them to return home.
Welegtabit said emergency officials were looking at using schools and other large buildings on neighbouring islands for temporary accommodation.
He said it was impossible to know how long the emergency would last.
"It's a question of how long the volcanic activity will continue, nobody knows," he said.
The eruption so far, while officially classed as "moderate", has led to warnings of flying rocks, acid rain and volcanic gas.
It has also laid a blanket of ash over crops and water sources in an area that was already experiencing a dry spell.
The Vanuatu government has appealed for international aid to help deal with the crisis.
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