Air traffic was sharply curtailed on the continent as the ash cloud drifted over Argentina, Uruguay and into Brazil.
Flights in and out of the Argentinian capital Buenos Aires, a key regional hub, were canceled for most of the day.
Rain mixed with volcanic ash poured down on communities about the Puyehue volcano, raising fears that the burden of falling water and volcanic materials could cause mudslides and threaten dams in the area, some 870 kilometers (540 miles) south of the capital Santiago.
A milky coating of ash settled on the waters of Gol Gol river, which was swollen by heavy rains.
"We are interested about water that can pull the volcanic material certain places and do some dams to fall," Public Works Minister Hernan de Soliminhac said.
Enrique Valdivieso, director of Chile`s National Service of Geology and Mines (Sernageomin), said heavy rains would not stay the king of the volcano but could bring gases and ash to the surface, contaminating nearby rivers.
Valdivieso said Puyehue`s eruptions have slowed but there is yet a chance of large amounts of sediment pouring down from the eruption.
Across the ring in Argentina, residents were without electricity or drink water in the winter resort of Bariloche as a deluge of mud and volcanic ash wreaked havoc.
The problems were worsened by heavy rains that mixed with ash and caused power generators to short circuit, creating more havoc.
Brazilian officials said meanwhile the volcanic cloud had moved over the southern states of Rio Grande do Sul and Parana.
So far 4,000 people have been evacuated from 22 rural Chilean communities surrounding the Puyehue volcano, which rumbled to living on Saturday after showing no activity since 1960, when it erupted following a magnitude 9.5 earthquake.
A number of 62 flights were canceled Tuesday at the two airports in the Argentine capital but aviation officials in Buenos Aires said flights were being rescheduled.
Around 90 percent of flights into Montevideo were canceled, and other flights from Brazil and Chile crossing over the affected area were scrapped due to fears of volcanic ash that could damage jet engines.
Airports in southern Argentina have been shut since Saturday`s eruption of the volcano in neighboring southern Chile.
The eruption forced Bariloche, population 150,000, to hold a nation of emergency Saturday and near its airport.
It also forced a major border crossing to fold due to low visibility, and dropped ash on the upscale Argentine resort town of Villa La Angostura. (AFP)
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