The Hawaii-based Pacific Tsunami Warning Center said the shallow quake generated a tsunami, but it cancelled a regional warning after the wave measured only 15 centimetres (six inches) higher than normal in Vanuatu.
"Sea level readings confirm that a tsunami was generated," the centre said in its bulletin.
"This tsunami may have been destructive along coastlines of the region near the earthquake epicentre," it said, but cancelled the warning when no destructive wave hit.
The quake struck at 12:16 am today (1316 GMT Saturday), and the initial tsunami warning covered Vanuatu, Fiji and the French Pacific territory of New Caledonia. There were no reports of damage or casualties.
Jackie Philip, a member of staff at the Melanesian Port Vila Hotel in the Vanuatu capital, said the hotel was busy with late-night Christmas revellers when the quake struck.
"Some of us, we ran outside and stood and watched the sea for a few minutes but nothing happened. There is no damage and no injuries," he said, adding that no tsunami warning had been given on local radio.
A receptionist at Port Vila's Grand Hotel called it a "small" earthquake, adding that calls to the meteorological office went unanswered. Staff at the nearby Island Magic Hotel also said there had been no local tsunami warning.
"We haven't had any notification of a tsunami," a worker told AFP. "We definitely felt the earthquake but we are notified if there's actually a tsunami."
Meteorological and disaster management officials were not available for comment when contacted by AFP.
The US Geological Survey said the quake was just 12.3 kilometres deep, and its epicentre was 145 kilometres west of Isangel, on the island of Tanna -- home to an active volcano -- in the Vanuatu archipelago.
The USGS revised its initial readings for the magnitude and distances involved, after first recording the quake at 7.6.
At least a dozen aftershocks of magnitude 5.0 or greater hit the area after the main tremor, according to USGS, including a powerful 6.2-magnitude shock some 12 hours after the initial quake.
Vanuatu, which lies between Fiji and Australia and north of New Zealand, is part of the "Pacific Ring of Fire" -- an ocean-wide area alive with seismic and volcanic activity caused by the grinding of enormous tectonic plates.