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The games were scheduled to run from February 5-13 in Dunedin, provided New Zealand was under a Orange or Green setting.
The games host a wide array of sporting events and related activities.
To make up for the cancellation, local football teams eager for a match organised to play a round robin tournament, which took place at Tahuna Park yesterday.
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Several local teams played, along with one from the North Island and one from Christchurch, both of which had booked non-refundable flights and accommodation, he said.
Otago Softball also held a mini tournament at the weekend, for six of the teams which usually competed in the Masters Games.
Operations manager Stacey Wardell said the participants loved it and having a smaller tournament raised the stakes, which made the banter between players fantastic.
Games manager Vicki Kestila said said it was disappointing the games could no longer go ahead, but the safety of participants, staff and volunteers was the top priority.
All entry fees would be refunded, excluding a small administration fee.
"We know many of our entrants will be feeling saddened by the news. Unfortunately, this is the challenging reality of living with Covid-19."