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Volunteer firefighters were called about 10.40am after a contractor hit a 300mm-400mm water main pipe in Thompson St.
A large volume of water cascaded down a bank on to Brunswick St, damaging four parked cars, flooding the yards of some private properties and causing debris to flow into Lake Wakatipu.
One of the worst-affected properties was Hotel St Moritz in Brunswick St.
Its general manager, Jo Finnigan, said her staff were busy cleaning up after earlier scrambling to stop water flowing into the hotel lobby.
They had "shored up" the main entrance using linen bags.
"We had very little water into the hotel, and none of our guests' rooms were impacted.
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"Thankfully, the majority of the incident happened on the road."
Guests were co-operative, and her team had been "amazing", Ms Finnigan said.
"They all acted incredibly quickly."
She was also impressed by the speedy response of volunteer firefighters and council contractors.
A Queenstown Lakes District Council spokesman said the water was shut off in time to minimise the effect on a reservoir, which meant residents in the area, and the town centre, had continued access to water.
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Brunswick, Man and Thompson Sts were closed while the damaged water main was repaired. Brunswick St reopened about 3.30pm, but Man and Thompson Sts - between Lake and Glasgow Sts - remained closed overnight.
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