A local tsunami alert has been lifted after a 7.4 magnitude earthquake struck northern Sumatra in Indonesia.

"Sea level readings indicate that a significant tsunami was not generated. Therefore the tsunami watch issued by this centre is now cancelled," the US Geological Survey (USGS) said.

The quake struck 214km south-east of the provincial capital of Banda Aceh, the USGS said.

It occurred at 12.59pm (5:59pm NZ time) at a depth of 33km, according to the Pacific Tsunami Warning Centre.

Fauzi, the chief of Indonesia's meteorology agency, said the closest town to the epicentre was Meulaboh, where a small "tsunami wave" just 20cm high was detected by a buoy off the coast.

Riswan, a local government secretary on Simeulue island, said the quake damaged some houses and caused a power outage, but phones were still working.

Local media reports said the quake caused panic in many parts of Aceh and the neighbouring North Sumatra province.

West Aceh police chief Djoko Widodo told Reuters: "From what I see around my office, there's no damage but I see people running out of their houses.

"They are still outside, afraid to go back."

"But up until now, there is no indication of damages or casualties."

The epicentre was approximately 66km south-west of Meulaboh, which was devastated in the 2004 earthquake and tsunami that killed more than 200,000.

Indonesia rests on a series of fault lines that make the archipelago nation one of the most earthquake-prone.

Last month Sumatra was shaken by a 7.7 earthquake, triggering a brief tsunami warning.

Another quake last year killed more than 1,000 people on the island.

However, based on historical earthquake and tsunami data, there is no threat of a widespread tsunami reaching New Zealand.