Schools, the hospital, workplaces and government offices in Iqaluit were closed. Residents were asked to stay home, conserve as much water as possible and boil anything for consumption.
The problem started with a break in a pipe leading to the local high school.
"That pipe has been clogged a lot this week with ice and we've had a vicious week with weather. It's been very, very cold so a number of the pipes in town have frozen," said Kent Driscoll with APTN National News.
"But the one at the high school froze and managed to break ... while they were trying to repair it and 20 million litres of water came out in just 20 minutes. And the emergency value that they would have used to shut it down was faulty."
The city said on its website that it was losing more water than it could produce.
Christine Senkow first noticed a problem at about 4:30 Friday morning when she got up to change her one-month-old baby's diaper.
"I went to go wash my hands...and noticed that there was hardly any water pressure, so I wasn't sure what had happened."
Senkow said it was an inconvenience.
"We use cloth diapers so I can't wash the cloth diapers today," she said.
"Fortunately, I have a couple days worth and I washed them yesterday, so I'm really lucky there. It also means we have to use hand sanitizer instead of washing our hands after diaper changes and feeds and things like that."
Crews were said to have worked through the night to ensure there was no damage to property or injuries.
Mayor Madeleine Redfern posted on Twitter that "significant flooding from the (10") broken pipe has also occurred from Inuksuk High School area down to the breakwater area."
Redfern tweeted a few hours later that the "broken water main has been temporarily patched."
"Water levels slowly returning & likely to take at least 8+ hours to bring back city water levels. We need residents to still conserve water," she wrote.
Public works crews were working to alleviate water and ice buildup in the flooded area, she said.
Iqaluit, which has more than 7,200 residents, is located at the head of Frobisher Bay.
Driscoll said some of the water went into a creek by the high school and then down into the bay.
That also caused concerns.
"The fresh water coming out of the pipes is mixing down in the bay and actually some of the sea ice in the bay is giving way," said Driscoll.
"There's one case of gentleman on his snowmobile and komatik, that's the sled you pull behind the snowmobile, went into Frobisher Bay because that ice has been melted by the water coming into it."
At midday, the city issued an urgent boil water advisory. Residents were advised to bring water to a rolling boil of at least one minute.
"The water treatment plant continues to treat water after losing a significant amount of water to a water main break, but water reservoir levels are not yet sufficient to begin an automated chlorination process that will ensure quality water," the city said in the advisory.
— By Jennifer Graham in Regina