The 63-metre crane, operated by Dunedin Crane Hire, had completed the installation of a cooling tower on the top of Dunedin Hospital when the incident happened about 10.45am.
The arm of the crane fell down Frederick St and crossed the intersection with Cumberland St, where cars were waiting at the lights.
There were reports of the Dunedin Hospital building shaking when the crane collapsed and many bystanders heard a loud crash.
St Hildas pupil Lauren Dewhirst saw the crane fall from her classroom.
"Oh my goodness. I'm not at the hospital but my friends and I were sitting in our class at St Hilda's Collegiate and witnessed the giant crane fall over this morning.
"We were on the third floor and had a perfect view of it just fall. I hope the people are okay because that was the scariest thing I have ever seen in my life," she said in an email to ODT Online.
No-one was injured and the crane driver, who was said to be very experienced, was shaken but unhurt by the incident.
Police expected the section of Frederick St to be closed for about three hours as they worked to remove the crane. Hundreds of bystanders gathered to watch.
Traffic diversions were set up on George St, Frederick St and Cumberland St.
