Ten people died and dozens were injured as the quake split open buildings 300km from the epicentre.
In the capital Jakarta 600km further south, high-rise towers wobbled, water sloshed from swimming pools and panicked office workers ran into the streets. Elsewhere, power was knocked out and phone lines went dead.
The huge quake - anything over magnitude 7.0 is considered to have the possibility for widespread damage and loss of life - was felt in neighbouring Singapore, Malaysia and Thailand, where office buildings swayed and shook.
The US Pacific Tsunami Warning Centre said an alert was raised for the entire Indian Ocean area including Indonesia, India, Sri Lanka, Thailand and the Maldives - all affected by the devastating December 2004 Asian tsunami.
"Sea level readings indicate a tsunami was generated. It may have been destructive along coasts near the earthquake epicentre," the Hawaii-based centre said.
The undersea quake erupted around 1100 GMT some 100km southwest of the city of Bengkulu at a depth of roughly 30km, the United States Geological Survey said.
It adjusted an earlier report of magnitude 7.9 to 8.4.
An official at Indonesia's meteorological agency said gauges measured a wave surge of 1 metre after the first quake.
Malaysia, Sri Lanka, the Maldives, India, Australia and Mauritius all issued separate tsunami warnings telling residents to move away from the Indian Ocean coastline. Australia, Sri Lanka, Malaysia and India later lifted their warnings.
Authorities in Kenya also warned residents to stay away from coastal areas.
Hundreds of thousands of people in southern Bangladesh fled their homes in panic fearing a tsunami.
Chittagong district administrator Ashraf Shamim said half-a-million people were rushing from coastal regions of the disaster-prone country following a government tsunami warning.
Tens of thousands were ordered to take shelter in the southern district of Cox's Bazar, while ships were ordered to stay close to harbour in Chittagong, home of the country's largest port.
Kenya, which had warned of a "massive tsunami" and urged people to evacuate the coast, said later that only high tides were expected. In Seychelles authorities said the window for a strike had passed and they were no longer under a tsunami watch.Source: Gulf Daily