Shut 'er down, Clancy!
This is arcing. It can start a fire.
This was caused by someone not using a torque wrench to torque the lug to spec. (Don't repeat the mistake.)
Do take it out of service Right Now.
Worse, it's arcing off the neutral, which means voltages are going bananas downstream of it - the two 120V phases are adding up to 240v as they should, but instead of 120..120, they are 90..150, 200..40, 230..10, all over the map. So 120V things are getting wild voltages ranging from 0 to 240V, and I would expect ongoing appliance destruction and potential fires.
From the bentness of the lug, I gather it has already partially melted down and cannot be reused. The wire is ruined anyway from the heat, so you'll need to cut off the heat-damaged section (as evident from the state of the insulation). Follow Greg Hill's advice on a new lug to attach to that neutral bar.
Feel free to tighten it down just "gud-n-tite" if you want this problem to happen again. NEC 110.14 requires use of a torque wrench because of this.
It is aluminum wire, but there's absolutely nothing wrong with that. Aluminum is not at fault here. In fact, people not understanding the importance of lug torque was half of what gave aluminum its bad reputation! (The other half was using it on terminals not properly rated for aluminum, blame government pressure on UL. But breakers and panel lugs are properly rated.)