The quake struck at 03:20 GMT in the Flores Sea, about 112 km. (70 miles) northwest of the town of Larantuka, in the eastern part of Flores Island, at a depth of 12 km.
"Everyone ran out into the street," Agustinus Florianus, a resident of Maumere town on Flores, told Reuters. Maumere was badly damaged by a quake of a similar magnitude in 1992.
Tsunami warnings were issued for the areas of Maluku, East Nusa Tenggara, West Nusa Tenggara, and Southeast and South Sulawesi. The warnings were lifted about two hours after the quake struck.
The US Geological Survey later said the quake had a magnitude of 7.3. An aftershock of 5.6 magnitude hit Larantuka, the Indonesian agency said.
"It felt like a wave, up and down," Zacharias Gentana Keranz, a resident of Larantuka told Reuters.
Alfons Hada Betan, head of East Flores Disaster Mitigation agency in Larantuka said there were no immediate reports of damage and the quake was felt for several minutes as people fled from their homes.
People said on social media the earthquake was also felt strongly in Makassar, South Sulawesi.
The US-based Pacific Tsunami Warning Center said that based on preliminary earthquake parameters, hazardous tsunami waves were possible for coasts located within 1,000 km (621 miles) of the earthquake's epicenter.
The European-Mediterranean Seismological Centre (EMSC) estimated the magnitude at 7.7, placing it at a depth of 5 km. (3.1 miles).
A magnitude 7.2 quake was felt 147 kilometers northeast of Ende in Indonesia, according to the EMSC.