The Virgin Australia Boeing 737-800 jet bound for Melbourne landed in Invercargill after the fire forced a diversion.
Fire trucks met the plane as it arrived in Invercargill about 50 minutes after takeoff from Queenstown, said Lynn Crosson, shift supervisor for Fire and Emergency New Zealand.
The cause of the engine fire and the number of passengers on board the plane were not immediately known, Queenstown Airport spokesperson Catherine Nind said.
Virgin Australia chief operations officer, Stuart Aggs said in a statement the incident may have been caused by "a possible bird strike".
"At this time, we are not aware of any physical injuries to guests or crew," Aggs said.
Passengers will be accommodated in Invercargill overnight and new flights would be arranged, Aggs said.
Queenstown, with a population of 53,000, is popular tourist destination on NZ's South Island, famous for skiing, adventure tourism and alpine vistas.
The rate of birds striking planes at New Zealand's airports is about four in every 10,000 aircraft movements, NZ's aviation regulator says on its website.
The consequences vary in severity depending on where the aircraft is hit, the size of the birds and the pilot's reaction, the Civil Aviation Authority says.
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