More than 140,000 people have fled their homes after Indonesian authorities issued the highest possible volcano alert last week.
But Bali’s governor said too many residents had been evacuated and ordered those outside the immediate danger zone to return to their homes.
I Made Mangku Pastik said the evacuees risked becoming a “burden” on emergency shelters and should return to their homes.
The 12km evacuation zone surrounding Mount Agung was implemented after experts warned the volcano could erupt for the first time since 1963.
About 500 makeshift shelters have been set up for about 70,000 people within the zone and thousands of people living outside the immediate danger area have fled their homes.
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Sutopo Purwo Nugroho, a spokesman for the national disaster mitigation agency, said: “Only people from 27 villages must evacuate. The rest can go home.
“They can either go home independently or with the help of the government.”
Indonesian authorities warned the volcano’s activity remains “high but stable”.
Hundreds of earthquakes have been detected at the base of Mount Agung, and the Indonesian Centre for Volcanology and Geological Hazard Mitigation continue to monitor the site.
More than 650 instances of seismic activity has been recorded each day since last Thursday.
On some days there have been nearly 1,000 tremors.
Still, Mr Nugroho insisted travellers should visit the island.
He said: “Don’t be afraid to come to Bali, it’s still safe.
“And if the mountain erupts, it’s still safe as long as people stay out of the dangerous zone.”
The Mount Agung volcano is situated about 70km from the popular tourist destinations of Kuta and Seminyak – which remain unaffected.
Several countries, including Britain, Australia and Singapore, have issued travel advisories for their citizens, warning of possible flight disruptions and evacuations.
The volcano killed 1,000 people when it last erupted in 1963.
It is one of more than 450 volcanoes along the Pacific Ring of Fire, which is the world’s most active earthquake belt.
Indonesia alone has nearly 130 active volcanoes, making it the country with the biggest volcano threat to life.