The backhoe had started to chip at asphalt near the corner of Ste-Catherine and Guy streets when the ground crumbled beneath it and the heavy machine tumbled in.
The driver of the backhoe was not injured but was taken to hospital to be checked out as a precaution, city officials said.
Emilie Miskdjian, a spokeswoman for the Ville-Marie borough, said the city was alerted to the possible water leak on the weekend.
She said preliminary indications were that the leak caused the problem but more inspections needed to be done to find the exact cause.
"We think that the water leak was because of the sewer pipe," she told reporters. "It's a broken sewer pipe. That's what we think but we have to do inspections to see what is really the cause."
Montreal police quickly blocked off streets around the sinkhole and rerouted traffic away from the stretch of street which is dotted with restaurants and stores.
Metal fences were erected around the hole, where the backhoe remained at an angle as crews figured out how to eventually remove it safely.
Firefighters and gas company workers also milled around the scene, which drew a horde of lunchtime gawkers who snapped pictures of it with their cellphones.
Rahman Esmaili, owner of the Sharx pool bar, was instead assessing damage to his basement-level bar where he says water had been leaking in for more than a week.
He says the city was warned about the problem but replied there were no reports of low water pressure.
"The city completely ignored (it)," he said. "This morning, they decided to come and look at it."
Esmaili said workers hadn't been there long before the street caved in. He wondered aloud what would have happened if heavy traffic had been passing over the spot at the moment it collapsed.
"It's very disturbing," he said.
Esmaili said he will have to close his business for several days to replace soaked carpeting.
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