Authorities issued several tsunami alerts for the country's entire Pacific coast in the wake of the tremor, which occurred 141 miles northwest of the capital Santiago and has forced one million people from their homes.
Strong aftershocks have continued to shake the region - including one with a magnitude of 7.0 - as residents were ordered to evacuate the coastline.
A series of waves have been reported along Chile's coast after the quake, which was felt as far away as Buenos Aires in Argentina.
The port city of Coquimbo was hit by waves of up to 15ft (4.5 metres).
Mayor Cristian Galleguillos said: "We're going through a really grave situation with the tsunami.
"We have residential neighbourhoods that have flooded ... The ocean has reached the downtown area."
Tsunami advisories have been issued for parts of South America, Hawaii, California and French Polynesia, although the waves are expected to be small.
In New Zealand, authorities have urged residents in eastern coastal areas to stay out of the water and away from beaches amid expected "unusually strong currents and unpredictable water flows near the shore".
As the warnings were issued, fishing boats headed further out to sea for the safety of deep water.
Many residents also packed their cars and drove inland to seek higher ground.
"People started screaming that everything was shaking," said Jorge Medina, a Santiago resident.
Footage on Chilean state TV showed water flowing into the streets of Concon, a coastal town near Valparaiso.
Other footage showed the walls and ceilings of buildings shaking as people rushed to safety.
In the inland city of Illapel, around 175 miles from Santiago, a woman was reportedly killed by a collapsing wall and the town's electricity supply was disrupted.
"We are very scared. Our city panicked," said the city's mayor Denis Cortes.
Another person died from a heart attack in Santiago, Chilean media said.
It is the first major earthquake to strike Chile since hundreds died following an 8.8-magnitude quake in 2010.
"Once again we must confront a powerful blow from nature," Chile's President Michelle Bachelet said while addressing the nation.
Chile is one of the world's most earthquake-prone countries.
The Nazca tectonic plate which lies off the coast plunges beneath the South American plate, causing major seismic activity.
The strongest earthquake ever recorded occurred in Chile - a 9.5-magnitude tremor in 1960 that killed more than 5,000 people.