The volcano, located in central Mexico, is considered one of the most dangerous in the world because some 25 million people live within a 100-kilometer (60-mile) radius.
Sunday's increased alert level -- to "yellow phase three" -- comes a day after two Mexico City airports temporarily halted operations due to falling ash.
Popocatepetl is located on the borders of the central states of Morelos, Mexico, and Puebla, the capital of which an AFP reporter said Sunday had woken up to a blanketing of gray ash.
The yellow warning means "remain alert and prepare for a possible evacuation," according to the warning system developed by Mexico's National Disaster Prevention Center.
The yellow phase three activated Sunday means "intermediate to high activity" and is triggered when the volcano shows "explosions of increasing intensity, expelling incandescent fragments."
According to civil protection coordinator Laura Velazquez, the alert increase also means an elevated risk of spewing magma and "significant explosions of increasing intensity that shoot fragments (of rock) over considerable distances."
The next step, a red alert, triggers mandatory evacuations.
Dozens of shelters have already been opened in areas surrounding the crater.
Popocatepetl, which has not had a massive eruption in more than a millennium, became active again in 1994 and has seen periods of increased activity ever since.
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