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Nanodimensional island films prepared by ion beam mixing (IBM) of silver layer on oxide substrates are studied by means of optical absorption spectroscopy and scanning electron microscopy. During bombardment by 400 keV Ar+ ions the Ag film is transformed into surface islands having size in the range of 30 -120 nm and volume nanoclusters with diameter less than 10 nm. The silver islands, in general, have shape close to oblate spheroid and exhibit splitting of the dipolar surface plasmon resonance observed in extinction spectra. High fluence irradiation induces viscous oxide flow and push-in of the surface islands into the oxide substrate. The dimensions of the surface structures depend on the IBM conditions and substrate material. The changes in the island geometry and push-in depth produce changes in the extinction spectra.