A powerful earthquake has shaken the Nicobar Islands in the Indian Ocean and parts of southern India, triggering a tsunami alert across the region that was later cancelled.

The magnitude 7.5 quake hit at 0126 local time on Sunday (1926 GMT) at a depth of 35km, with the epicentre around 160km west of the Indian-owned islands, the US Geological Survey said.

The Pacific Tsunami Warning Center, based in Hawaii, initially issued a warning for the entire Indian Ocean region, later downgrading it to India only, before finally cancelling the alert altogether.

"Sea level readings indicate that a significant tsunami was not generated," the centre said in a bulletin.

It had earlier said that such powerful quakes had the potential to generate a destructive local or even regional tsunami.

The region witnesses frequent earthquakes caused by the meeting of the Indian tectonic plate with the Burmese microplate along an area known as the Andaman trench.

India's ocean information centre issued a "tsunami watch" for 10-15 islands in the aftermath of Sunday's quake, but said it was expecting only a mild surge in sea levels.

"This is nothing alarming, but just a watch," Sriniwas Kumar, a spokesman from the state-run Indian National Centre for Ocean Information Services told the AFP news agency.

The tremors were felt more than 1,000km from the epicentre on mainland India.

The Press Trust of India reported that many people were shaken awake, causing some to flee their homes in panic.

Moderate tremors were felt in India's southeastern coastal city of Chennai, but there were no reports of casualties or damage to property, according to police.

Islands in the Indian Ocean were badly hit by the 2004 Asian tsunami which was triggered by an earthquake off Sumatra, sending giant waves crashing across the region.

That tsunami killed more than 220,000 people, most of them in the northern Indonesian province of Aceh.

Thousands were also killed in Sri Lanka, Myanmar, Thailand and India.