The US geological survey said the quake occurred just after 7.30 this morning (1930 UTC) at a depth of 10 kilometres.
RNZI reports it struck 31 kilometres east south east of Lakatoro on the island of Malekula.
The quake was felt strongly in both the capital Port Vila, in the south of the country, and in the main northern centre of Luganville, which is closer to the epicentre.
Images of damage to general stores in Luganville have surfaced on Facebook.
Earlier, the Pacific Tsunami Warning Centre advised that there was no threat of a Pacific-wide tsunami from the quake.
However the Centre said hazardous waves were possible for coastlines located within 300km of the earthquake's epicentre.
Damage from the 7.0 earthquake in the northern Vanuatu town of Luganville. Photo: Jerry Chen