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The incident occurred on Thursday, 2km to 3km from the township.
The dust was caught on camera by Lake Hawea resident Richard Spence. He did not see the collapse but said it sounded like an explosion.
Resident John Taylor said cliff collapses had been occurring ever since the lake was raised in the late 1950s.
There were some earlier this year along Flora Dora Pde, in the township.
The latest was probably caused by heavy rain over recent weeks rather than by the lake which was still at a reasonably low level, he said.
Contact Energy has put up signs along the foreshore warning of the danger of the unstable cliffs.