The alert was eased about 90 minutes after the quake struck, said national emergency director Ricardo Toro.
Mr Toro said there was no information of loss of life although some highways were damaged.
Power was cut to about 22,000 customers, the local electric company reported.
A Chilean taxi driver reported cars equipped with loudspeakers roaming the streets urging people to evacuate beach areas.
The taxi driver, Luis
Ramirez, said he was washing his car in his home town of Ancud when the quake hit.
"I'm 48 years old and I've never felt anything so strong," he said.
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The US Geological Survey said the magnitude 7.6 quake struck near the southern tip of Chiloe Island, about 25 miles south-south-west of Puerto Quello and at a depth of 22 miles.
The area, some 800 miles south of the capital of Santiago, is relatively sparsely populated.