The U.S. Geological Survey said the shallow, 7.2-magnitude quake struck off Sulawesi Island's coast at around 1:34 a.m. (1734 GMT; 2:34 p.m. Wednesday EST), shaking people from their sleep. It was followed by dozens of aftershocks, the strongest measuring 6.2.
The Talaud island chain, in waters just south of the Philippines, felt the quake most intensely, said Rustam Pakaya, a government crisis center official, adding that Melonguane and Kabaruan were the towns hardest hit.
Nearly 500 buildings were damaged, including several schools, hospitals and churches, he said. Of the 42 people receiving medical care, 10 suffered serious injuries. Thousands of others were seeking refugee in shelters.
The quake briefly triggered a tsunami warning - delivered over mobile loudspeakers and by radio and television. It was lifted about an hour later, however, after the threat of killer waves had passed.
"We were so afraid," said Damian Geruh, a Melonguane resident who described women screaming as they fled their homes. "We ran to nearby hill. I saw others climbing trees."
The USGS said the early morning quake, and nearly three dozen aftershocks that followed, were centered 195 miles from Manado, the northernmost city on Sulawesi island, and 12 miles beneath the ocean floor.
Indonesia is prone to seismic upheaval due to its location on the so-called Pacific "Ring of Fire," an arc of volcanoes and fault lines encircling the Pacific Basin.
In December 2004, a massive earthquake off the country's western island of Sumatra triggered a tsunami that battered much of the Indian Ocean coastline and killed more than 230,000 people - more than half of them in Indonesia's Aceh province alone. A tsunami off Java Island in 2007 killed nearly 5,000.