Witnesses said the tornado sounded like "a giant vacuum cleaner" when it tore across the Albany Megacentre, one of the largest shopping centres in the country.
Auckland mayor Len Brown said two people were killed and dozens injured, adding the death toll could rise.
"We've had two confirmed fatalities, it's absolutely disastrous," he told Radio New Zealand.
The tornado is the latest in a string of disasters to hit New Zealand, including two earthquakes in Christchurch, the second of which claimed more than 180 lives, and a colliery explosion last November in which 29 miners died.
Witness Rob Crawford said the scene around the shopping centre resembled a disaster movie after the tornado, which passed over in less than 30 seconds.
"Car parks scattered with the remains of trees, upturned cars. There's iron off the roof... it's surreal," he told the New Zealand Herald.
"It's a movie set. (You think) is this real, is this happening? But when you see people lying on the ground, covered in blood, clutching their heads, it's damn real."
One witness told Sky News that cars were crushed with people inside.
Shop worker Martin Sibrits said the resulting devastation looked like a bomb site.
"It was simply unbelievable, it was huge. I could see bit pieces of iron flying through the air, 100 metres up," he told Fairfax Media.
The Auckland city council said an emergency centre had been set up to coordinate relief efforts, while police urged people to stay indoors. "We encourage people to return home, contact family if necessary. Leave roads near Albany commercial area free for emergency services," police said. New Zealand Metservice meteorologist Peter Kreft said the tornado hit without warning and the damage stretched for kilometres, with the eye of the storm measuring more that 10 metres (33 feet) wide. He said such twisters were relatively rare in New Zealand.
"Tornadoes in New Zealand are typically of that size, they're nothing like the size that are observed in the Midwest of the US," he told Radio New Zealand.
"So while it's a tragic and devastating event for the area it's passed over, in the broader scheme of things it's a relatively small tornado."
Another tornado struck Albany 20 years ago in May 1991, killing one man who was hit by debris while he was driving a bulldozer.
