Assistant Director Ima Itikarai says the eruption was anticipated.
He says stage 2 alert means authorities on ground and communities around the volcano must begin preparations to evacuate.
Itikarai said a stage 2 alert is when an eruption may happen any time.
The Observatory says it was reported that roaring and rumbling noises were heard at Bogia during the initial stages of the eruption.
After that no noises have been heard and reports coming in from Bogia indicate fine ash began to fall at Bogia around 12:45.
The Observatory says by 1:00pm the area around Manam appeared slightly dark.
Details of the eruption and likely impacts on the island are also still unclear due to lack of information from the island.
Itikarai said it stopped getting seismic data from Manam since July 27 due to a technical problem.
People on the island are advised to always remain vigilant and take precautions and avoid venturing into the four main valleys.