The black tornado, believed to be several hundred metres high, knocked limbs off several poplar trees, briefly blocking about a 40m stretch of Ramrock Rd, and damaged the roof of a farmhouse, about one km south of the town ship, about 12.25pm.
No one was hurt.
Power to parts of the township was also briefly disrupted about 1pm before being quickly restored.
"It was really spectacular - the funnel coming down to the ground. There was all sorts of stuff being sucked up, you could see like polka dots of rubbish being spun in the air,'' Waikouaiti electrician Alan Brennan said.
Waikouaiti police Constable Lesley Eason said the tornado was an "incredible'' sight.
"It was a twister, like on TV,'' Const Eason said.
For some minutes the tornado had been heading straight for the township from the south, during a hail storm, and damage would have been much more severe had it come right in to the township, she said.
She praised the "brilliant'' efforts of the Waikouaiti Volunteer Fire Brigade in securing the farm house roof with a tarpaulin, and cleaning up broken glass in side the house.
A nearby farmer had also pitched in by using his front-end loader to clear the poplar limbs from Ramrock Rd, she said.
