A Papua New Guinea government official, Malum Nalu, said the "very violent" earthquake struck around 9pm when he was at Lae's stadium with hundreds of others for a ceremony in honour of the deceased governor of the local Morobe province.
Soldiers were lifting Luther Wenge's casket to go to a funeral home when it struck, he said.
"There was a big rumbling noise like a plane flying overhead, then the building was shaking violently for around three minutes," Nalu told Reuters.
"There were hundreds of people inside, it was packed to capacity. People were rushing to get out of the exits and the deputy prime minister was calling for people to keep calm."
A Lae city police official, Mildred Ongige, also described the earthquake as "very huge".
But both officials said they did not yet have details of any damage.
Another witness, who declined to be named, said the earthquake had stirred superstition among locals.
Several government ministers were in Lae ahead of a state funeral scheduled for Wenge on Wednesday.
A tsunami warning was not issued after the quake, which struck at a depth of 10km, according to the Pacific Tsunami Warning Centre.
The quake's epicentre was 26km from the city of Lae, which has a population of over 76,000 and is located in the country's Morobe province.
The quake was initially reported at a magnitude of 6.8 by the German Research Centre for Geosciences before the agency revised it to 6.6.
Papua New Guinea straddles the Pacific's Ring of Fire, a region known for frequent earthquakes.
In March last year, three people were killed and more than 1000 homes destroyed after a 6.7 magnitude earthquake hit the remote East Sepik province in the north of the country.
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