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Fairfax reported hundreds of students gathered in the backyard of the flat near the corner of Cumberland and Dundas Sts and cheered on the antics.
Videos and pictures shared on social media showed people with their heads shaved, stripped down to their underwear, sculling drinks until they vomited.
A person at the party told Fairfax they witnessed a student crouching over another student who was laying on the ground and urinate on his face.
The behaviour was reportedly part of a flat initiation where students departing a flat make incoming tenants keep degrading tasks.
Hazing and flat initiations have long been a concern of Otago University, which forbids them in its code of conduct.
An Otago University spokeswoman said it was aware of the event and campus watch were called to the area after other staff expressed concern.
The issue would be referred to the proctor.
"Students who may be involved need to be aware of the student code of conduct and serious consequences, including possible exclusion from university, of potentially harmful behaviour resulting from excessive alcohol consumption," the spokeswoman told Fairfax.