Indonesia's geophysics agency lifted a tsunami warning 34 minutes after it was first issued following a major earthquake that sent huge waves crashing into the northeast coast of Sulawesi island.

The 7.5 magnitude quake and tsunami, which hit the city of Palu about 1500km from Jakarta and further along the coastline, killed at least 384 people and left thousands more homeless. 

Officials said the death toll was likely to rise.

Hundreds of people had gathered for a festival on the beach in Palu when waves as high as six metres smashed onshore at dusk, sweeping many to their death.

Indonesia's geophysics agency (BMKG) faced criticism on social media on Saturday, with many questioning if the tsunami warning was lifted too soon.

The agency said it followed standard operating procedure and made the call to end the warning based on data available from the closest tidal sensor, around 200km from Palu.

"We have no observation data at Palu. So we had to use the data we had and make a call based on that," said Rahmat Triyono, head of the earthquakes and tsunami centre at BMKG.

He said the closest tide gauge, which measures changes in sea level, only recorded an "insignificant" six-centimetre wave and did not account for the giant waves near Palu.

"If we had a tide gauge or proper data in Palu, of course it would have been better," Triyono said.

"This is something we must evaluate for the future."

It was not clear whether the tsunami, which officials say hammered Palu and the surrounding area at extremely high speeds measuring in the hundreds of kilometres per hour, occurred before or after the warning had been lifted.

"Based on the videos circulating on social media, we estimate the tsunami happened before the warning officially ended," Triyono said.

The scenic town of Palu sits at the mouth of a narrow bay in northeast Sulawesi and is home to around 380,000 people. 

It was hit by a tsunami in 1927 and 1968, according to Indonesia's national disaster mitigation agency [BNPB].

University of Oxford geophysics researcher Baptiste Gombert said it was "surprising" the quake had generated a tsunami.

The quake was recorded as a "strike-slip" event where neighbouring tectonic plates move horizontally against each other, rather than vertically, which is what usually generates a tsunami.

"There is some speculation that there was a landslide under the sea which displaced a lot of water and caused the tsunami," he said, adding the narrow bay may have concentrated the force of the waves as they moved toward the shore.

Sutopo Purwo Nugroho, spokesman for the disaster agency, told reporters his team had been "preparing to send public warnings that were easy to understand" when the tsunami warning was "suddenly ended".

The communications ministry said repeated warnings were sent out to residents via text message, but Nugroho said the quake had brought down the area's power and communications lines and there were no sirens along the coast.