Authorities say three firefighters and at least nine civilians, including construction workers, passersby and others, suffered minor injuries when the fire broke out around 7:30 a.m.
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The crane is on a building under construction, located on 10th Avenue and West 41st Street. Officials say the building is about 45 stories high.
Photos and videos posted on social media showed flames bursting from the engine compartment of the crane hundreds of feet above street level.
The crane was carrying 16 tons of concrete and as the fire burned, it weakened the cable holding up the concrete until the cable gave way.
Video captures NYC crane collapse
The crane boom went swinging like a sledgehammer, slicing a neighboring building, before both it and the concrete collapsed onto the street below.
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"As you can see from the debris on the street, this could have been much worse," Mayor Eric Adams said, noting that the street at that hour of the morning is often filled with pedestrians, cars and buses.
Officials said the crane operator was there when the fire broke out but could not put it out and had to evacuate. He was able to escape safely.
Within a few minutes, firefighters were shooting water down at the blaze from a balcony of an adjacent building.
More than 200 police officers and firefighters fanned out across the scene as 10th Avenue was closed for safety reasons until further notice.
Officials say there is one crane operator and about 50 people working near the crane on a typical day.
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Authorities said they planned to investigate the structural integrity of the building that was under construction.
The location is near the Port Authority Bus Terminal and an entrance to the Lincoln Tunnel, which carries auto traffic to and from New Jersey under the Hudson River.
Preliminary investigation suggests the fire was likely caused by a hydraulic fluid leak, according to officials briefed on the situation. The probe is ongoing.
(The Associated Press and ABC News contributed to this report.)