The 8.3-magnitude tremor was centred off the coast, about 144 miles (232km) north-west of the capital.
The Pacific Tsunami Warning Center warned that "widespread hazardous tsunami waves are possible".
One person was killed by a falling wall, and evacuation was ordered in coastal areas. Tsunami sirens were heard in the port of Valparaiso.
The earthquake struck just off the coast at 19:54 local times (22:54 GMT), about 55km west of the city of Illapel, the US Geological Survey said.
Officials said it was at the depth of about 10km.
The US Geological Survey initially reported the tremor as magnitude 7.9, but then quickly revised the reading to 8.3.
Several strong aftershocks were reported just minutes later.
Illapel Mayor Denis Cortes reported that one person was killed by a collapsing wall, and 15 other people were injured.
Some homes were reportedly damaged in the city.
"Tsunami waves reaching more than three metres above the tide level are possible along some coasts of Chile," the Pacific Tsunami Warning Center warned.
The earthquake struck as thousands of Chileans have been travelling to the coast ahead of a week of celebrations of the national holidays, or Fiestas Patrias.
Tsunami alerts were also issued for Peru and Hawaii.
The quake was also strongly felt in some Argentine provinces like Mendoza and in the capital Buenos Aires several buildings were evacuated, the BBC's Ignacio de los Reyes reports.
Chile is one of the most seismically active locations on the globe.
It runs along the boundary between the Nazca and South American tectonic plates. These are vast slabs of the Earth's surface that grind past each other at a rate of up to 80mm per year.
In February 2010, an 8.8-magnitude struck off central Chile, killing more than 500 people.