All residents, pedestrians and motorists within 100m of the leak at 10 Haddows Pl were told to stay away or beyond the cordon at the intersection with Erskine St, and not to cause ignition of the stray gas, such as by lighting a cigarette or starting a vehicle engine.
Erskine St resident and nanny Valerie Johnson, of Seattle, said: "A nice and respectful policeman told me I had to evacuate and stand behind the police line, so I'm taking the baby for a walk."
Another resident, Sid Lake, said he thought he smelled gas and the leak was confirmed when police knocked on his door.
"This sort of thing hasn't happened here before, as far as I'm aware."
Bridesdale Dr residents Richard and Kerry Manning and family were also asked to leave their home.
"We see firemen going around and I'm assuming they've lost someone," Mr Manning said.
"Then police come around and someone said jokingly there was a gas leak, and there was. The police told us to leave straight away - no cars."
Queenstown police Acting Sergeant Craig Gibson said the owner of the property where the contractor was working alerted the fire service, which in turn contacted the police at about 12.35pm.
An appliance and six firefighters from Frankton Volunteer Fire Brigade attended and an appliance from Arrowtown was called as back-up.
Frankton station officer Mike Ide said gas could be seen rising from the ground.
Firefighters contained the leak and two wore breathing apparatus as they dispersed the gas with water.
Acting Sgt Gibson said dispersal was helped by the prevailing wind.
Other firefighters assisted police in alerting the public and Gasco staff turned off the mains.
Jonathan Hill, spokesman for network owner-operator Rockgas, which is owned by Contact Energy, said a contractor punctured a supply line that took liquid petroleum gas from the reticulator network into individual homes.
"It's not an entirely uncommon incident and was quickly managed and wrapped up."
Residents were able to return to their homes at 1.50pm.
