A powerful earthquake struck an area off Indonesia's northern Sulawesi early on Monday, killing at least two people and injuring nearly 40 after hundreds of houses collapsed, a disaster official said.

 Indonesia briefly issued a tsunami warning which was lifted later, the meteorological office said.

The magnitude 7.5 quake was at a depth of 21 km, with its epicentre 136 km (84 miles) northwest of the provincial capital of Gorontalo, the US Geological Survey said.

A series of further weaker aftershocks struck in the same area of the Celebes Sea bordering the southern Philippines.

Rustam Pakaya, head of the Indonesian health ministry's crisis centre, said initial information showed two people had died, one in Gorontalo after a building collapsed and another in the district of Buol in Central Sulawesi province.

He said 37 people were injured.

More than 200 houses were damaged in Buol, Pakaya said, adding there were reports of collapsed schools and homes in Gorontalo.

In more remote parts of Indonesia with sketchy communications it often takes time for assessments of damage or casualties to arrive.

A telephone operator in Gorontalo said the quake could be felt strongly in the city. "It felt quite big and caused panic," the operator told Reuters, adding that the telephone network had been disrupted.

The latest aftershock came at 2233 GMT, measuring 5.1 on the Richter scale, the meteorological agency said. Residents had fled to higher ground in some areas.

In the town of Poso in central Sulawesi, residents rushed out of their houses and patients were evacuated from a hospital, Metro TV reported.

Schools were also closed in some areas of Sulawesi, Elshinta radio station reported.

An official at the Philippine Institute of Vulcanology and Seismology, the country's main earthquake watching agency, said it had also issued a tsunami alert after the quake.

"We lifted a tsunami alert at 4:05 am after we determined that it would not affect our southern coast," said Joan Salcedo, adding that the agency did not record any quake or aftershocks in the Philippines related to the Sulawesi tremor.

Indonesia launched a new hi-tech system on Tuesday aimed at detecting a potential tsunami and providing faster alerts in a region battered by frequent earthquakes, though experts say large parts of the country are still not covered and the system will not be fully operational until 2010.

The sprawling archipelago of some 17,000 islands, which lies in the seismically-active "Pacific Ring of Fire", was hit by a devastating tsunami four years ago that left an estimated 170,000 people dead or missing in Aceh province. - Reuters