Lake Kleifarvatn is a lake not far from Reykjavík. It lies in a very volcanic area and has lots of hot springs boiling in and around it. A few years ago a fissure (crack) opened up under the lake and drained a good deal of the lake instantly. I think it has grown back to its original size though.
Legend says that it is connected by an underground tunnel to the Lagarfljót river by Egilsstaðir in east Iceland. The monstrous worm seen occasionally in both places is therefor the same beast.
Photo by Örvar Atli Þorgeirsson - Arctic Photo.