The magnitude 7.5 tremor struck about 11pm Tuesday, local time (1am Wednesday, NZT) at a depth of 10 kilometres, according to the US Geological Survey.
It was centred about 40 kilometres off the coast of New Britain island, which sits in an archipelago to the north of the New Guinea mainland.
"It was very, very violent," said Frank Kilaur, a sergeant at the Rabaul police station, who said the town's electricity had been cut off.
"At the moment there's no damage, but we have to wait until daylight, we're in pitch black right now."
Mr Kilaur said the earthquake had sent panicked residents fleeing into the streets, although he said the town quietened down again soon after. There had been violent aftershocks through the night, he said.
An initial scan by torchlight showed no significant damage in the town, he said, adding that authorities were waiting for daylight to conduct a more thorough assessment.
The police were yet to hear from remote areas outside of the town, and from small islands closer to the epicentre, he added.
A spokesperson for the district's Nonga Hospital said no one had been taken there needing treatment.
The shallow earthquake trigged an initial tsunami warning for Papua New Guinea and nearby Solomon Islands, with the Pacific Tsunami Warning Centre forecasting a surge as high as one metre.
But early on Wednesday, the centre said the threat had largely passed with no reports of tsunami waves.
Don Tokunai, a disaster official on Rabaul, said villagers close to the epicentre had reported the ocean receding, but there was no tsunami wave.
"They said they just woke up and felt the shake, but that they are still okay there," he said.
Papua New Guinea is one of the most seismically active countries in the world, sitting on the Pacific's Ring of Fire. Tuesday's tremor was the third earthquake in three months with a magnitude higher than seven.
Rabaul itself is no stranger to natural disaster either, with much of the town buried by ash in a 1994 volcanic eruption.