Police confirmed two dogs had been seized from property following the ordeal, which was captured on CCTV footage in Revell St on Tuesday evening.
One witness, who did not want to be named, said it was "horrific''.
They watched as two dogs jumped out of the open window of a parked car and attacked a small dog being walked adjacent to the New World supermarket.
The woman walking the dog was knocked down in the chaos and dragged along the footpath while still holding on to her dog's leash.
The witness said the woman was bitten in the process and required medical attention.
A number of people came to her aid and also stepped in to try and break up the attack.
The attacked dog was taken to the vet that evening, and the Guardian understands it needed surgery on Wednesday.
The witness said it was a totally unprovoked attack.
"They were just walking down the street. To see the woman dragged down the footpath by the force of the dogs was horrible. The (attacking) dogs would have torn the little dog to pieces if they had the chance.
"It could have been a lot worse if it was a little kiddie. It was horrific.
"I think any Joe Citizen would have been shocked. We don't need dogs like this in our community.''
A person who watched the footage, which has been given to police, said it was traumatising.
"I'm pleased it didn't have any volume, because I'd hate to imagine what the noise was like. It was just so horrible.
"I've got a dog and I walk through town, and to see that that can happen, so fast, it's just horrific.''
Police did not attend the incident, but said they were asked to assist animal control in collecting two dogs from a Hokitika property a couple of hours later.
The Guardian understands the owners of these dogs also watched the CCTV footage.
The Westland District Council was keeping largely quiet on the matter yesterday, "in consideration of the welfare of all the parties involved'', and would not been drawn on questions around the status of the dogs involved.
Dogs may be impounded and/or put down if they attack people or animals, while owners of dogs involved in a serious attack can be prosecuted.
"Council is following due process regarding the attack in accordance with council's bylaw and internal processes,'' a spokeswoman said.
"It would be unfair to the owners to give information to the media when due process has not yet taken place.''
- By Janna Sherman of the Hokitika Guardian
