The hole is about 1.5m wide 5m to 10m deep and it represented a "significant hazard to the safety of walkers'', the Central Otago District Council parks team leader Ian Mann said.
The sink hole is about 5m from the track, near the access over the stile from the Luggate -Cromwell Road.
The track remained safe to use and council was advising walkers to stay on the track at all times, Mr Mann said.
The track up the side of the Sugarloaf was developed by the Cromwell Rotary Club and it also maintains the track, which covers council-owned land.
Club members have fenced the sinkhole and options for a more permanent solution to the problem would be canvassed this week.