Disaster agency spokesman Sutopo Purwo Nugroho said in a television interview there are "many victims".
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United Nations spokesman Stephane Dujarric said United Nations officials were in contact with Indonesian authorities and "stand ready to provide support as required".
"People are encouraged to remain vigilant", Sutopo said.
A large ship was washed 70 metres inland by the wave.
Amateur footage of the tsunami has gone viral on social media and has been shown on local TV stations.
Houses were swept away and families were reported missing, Nugroho said, adding that communications and power to the area were disrupted.
An official with Akris, the local disaster agency, said that many houses collapsed due to the powerful evening quake.
"The cut to telecommunications and darkness are hampering efforts to obtain information", he said, according to the AP.
People survey a building partially damaged by quake in Poso, Central Sulawesi. It depicts huge waves crashing into houses along Palu's shoreline.
A spokeswoman for the Australian Department of Foreign Affairs said it was not aware of any Australians that have been affected by the quake but was continuing to make inquiries with local authorities. More than 600,000 people live in Donggala and Palu.
President Jokowi will arrive in Palu on Sunday to monitor the handling of the emergency.
The waters came sweeping in hours after a powerful quake measuring 7.7 on the Richter scale rocked the region at around 6pm local time (4.30pm IST).
The island of Lombok was rocked by a series of tremors in August that triggered landslides and kiled at least 460 people. "Hoping all our brothers and sisters there staying calm and safe".
The National Disaster Mitigation Agency said the tremor was felt for about 10 seconds in Donggala.
Patients are evacuated from a hospital following a strong quake in Poso.
In 2004, an quake off the northern Indonesian island of Sumatra triggered a tsunami across the Indian Ocean, killing 226,000 people in 13 countries, including more than 120,000 in Indonesia.
Indonesia is prone to earthquakes because of its location on the "Ring of Fire", an arc of volcanoes and fault lines in the Pacific Basin.