By Agence France-Presse
The shallow 7.5 magnitude tremor was more powerful than a series of quakes that killed hundreds on the Indonesian island of Lombok in July and August.
The tsunami waves triggered by the latest quake reached a maximum height of 1.5 metres (five feet), the disaster agency said, with video footage showing a churning wall of water slamming into Palu city on Sulawesi island.
Dramatic video footage filmed from the top floor of a parking ramp in Palu, nearly 80 kilometres (50 miles) from the quake's epicentre, showed waves of water bring down several buildings and inundate a large mosque.
There were no immediate reports of deaths or injuries after the tremor, but people living hundreds of kilometres from the epicentre reported feeling the massive shake, hours after a smaller jolt killed at least one person in the same part of the Southeast Asian archipelago.
The quake hit just off central Sulawesi at a depth of 10 kilometres just before 6:00 pm local time (1100 GMT), the US Geological Survey said. Such shallow quakes tend to be more destructive.
"There are reports that many buildings collapsed in the earthquake," national disaster agency spokesman Sutopo Purwo Nugroho said in a statement.
"Residents panicked and scattered out of their homes."
Pictures supplied by the agency showed a badly damaged shopping mall in Palu where at least one floor had collapsed onto the storey below, while other photographs showed major damage to buildings and large cracks across pavements.
Search and rescue teams have been dispatched to hard-hit areas, Nugroho said.
The main airport in Palu -- a city of 350,000 -- was shut after the tsunami struck and was expected to stay closed for at least 24 hours.
Friday's tremor was centred 78 kilometres north of Palu, the capital of Central Sulawesi province, but was felt in the far south of the island in its largest city Makassar and on the neighbouring island of Kalimantan, Indonesia's portion of Borneo island.
The initial tremor, which was followed by a series of powerful aftershocks, struck as evening prayers were about to begin in the world's biggest Muslim majority country on the holiest day of the week, when mosques are especially busy.
Quakes of similar magnitude can cause great damage to poorly built or badly designed structures, including the toppling of chimneys, columns and walls, according to USGS.
Indonesia is one of the most disaster-prone nations on earth.
It lies on the Pacific "Ring of Fire", where tectonic plates collide and many of the world's volcanic eruptions and earthquakes occur.
Earlier this year, a series of powerful quakes hit Lombok, killing more than 550 people on the holiday island and neighbouring Sumbawa.
Some 1,500 people were injured and about 400,000 residents were displaced after their homes were destroyed.
Indonesia has been hit by a string of other deadly quakes including a devastating 9.1 magnitude tremor that struck off the coast of Sumatra in 2004.
That quake triggered a tsunami that killed 220,000 throughout the region, including 168,000 in Indonesia.