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Eight people, including four Chinese tourists in one vehicle, were involved in the 3.45pm crash, about 30 minutes north of Te Anau.
''It looks like two cars have crashed head-on and a third car has clipped them,'' Inspector Lane Todd, of Invercargill, said last night.
''But, we're still carrying out a forensic examination and it's too early to know what occurred. We should have a better idea in a couple of days.''
A 56-year-old Chinese woman died at the scene.
''We won't be releasing the deceased's name until we have contacted her relatives in China.''
The 43-year-old driver of the vehicle was airlifted to Dunedin Hospital in a critical condition and a 58-year-old male passenger was taken to Southland Hospital in a critical condition.
The fourth person in the vehicle, a 30-year-old woman, was taken to Southland Hospital with moderate to serious injuries.
The occupants of a second car, a 32-year-old man and 29-year-old woman from Invercargill, were both admitted to Southland Hospital in a serious condition.
The two occupants of the third vehicle, a 42-year-old man and 39-year-old woman from Dunedin, were uninjured, he said.
Earlier, Southern police communications Inspector Murray Hurst said it appeared one car had crossed the centre line.
''There were two cars. One was on the wrong side of the road, going up a hill,'' he said.
The crash was attended by three helicopters, police units from Te Anau, Lumsden and Invercargill, fire and ambulance crews from Te Anau, Lumsden and Mossburn and the serious crash unit. Roads were closed between Mossburn and Te Anau for about six hours while the crash scene was cleared.
The fatality brought the holiday road toll to four, after two young children died in separate crashes in the North Island.
A child was killed yesterday when a vehicle carrying three people crashed near Taumarunui.
An 11-month-old girl died in hospital on Saturday night after a crash north of Wellington. She suffered serious injuries when the car she was in rolled near Raumati South about 2pm.
Her mother was in a serious condition in hospital.
Their deaths prompted a call from police for parents to ensure their children were properly restrained in vehicles.
Sandy Paul Waenga Brown (21), of Paua, died in a crash in Te Kao on Christmas Day.
The official summer holiday road toll period started at 4pm on Christmas Eve and ends at 6am on Friday. Six people died on New Zealand roads during the same period last year.
- Additional reporting APNZ