The helicopter pilot said the girl had sustained third degree burns to more than 40 per cent of her body.
Middlemore Hospital communications manager Lauren Young said the girl was in a serious but stable condition in the hospital's intensive care unit.
She said the girl would be moved into the burns unit when she was able to breathe on her own and that could be within the next few days.
The owners of a nearby coffee shop said they saw ambulances and police on Froude St mid-afternoon on Thursday but did not know what was happening.
"I saw a few ambulances pull up but I didn't know what was happening, I thought someone had pulled a ligament or something," one witness, who did not want to be named, said.
Local children often played alongside the stream, a resident, who did not want to be identified, told The Daily Post.
She said parents and families always made sure their children knew of the dangers of the hot pools.
Rotorua police were called to the incident but said they were not investigating as it was an accident.
Rotorua District Council officials are investigating because the incident happened on council land.
Council parks and recreation manager, Garry Page, said it was a "dreadful accident" and he could "only imagine" what the girl and her family were going through.
Mr Page said the incident happened alongside the Puarenga Stream off Froude St at Whakarewarewa where locals often played. He said the geothermal hazards were well known to people in the area.
"We understand the girl was playing with other children when she lost her footing and fell into the mud pool. Fortunately she was immediately removed and then submerged into cool water in the adjacent Puarenga Stream, otherwise her injuries may have been even more serious."
Mr Page said council staff had examined the area and would be investigating whether there was anything the council could do to make it safer.
"Unfortunately this mud pool is one of thousands of geothermal hot spots that can be found right across the Rotorua district and obviously, it's simply not possible to fence off every single potential hazard," he said.
"It's a location well known to local residents living in the Whakarewarewa area and also frequented by some out-of-town visitors.
"We're placing more warning signs in the vicinity advising people to keep to formed tracks, however we have to acknowledge that signage and fencing tends to have limited effect on active and determined youngsters."
Mr Page said he hoped the young girl would be able to recover from her injuries.
Her accident is the second of its kind in Rotorua in the past year. Hamilton boy Toromon Toromon died after suffering severe burns when he fell into a hot pool in Kuirau Park last Boxing Day.
The Rotorua District Council erected a 1.2m fence around the pool and put up more signage in the area.
Additional reporting Kristy Martin