Authorities said a fault at Gibe III hydroelectric dam in the southern region had caused the blackout.
The dam, which has a capacity of 1,800 megawatts of hydroelectric power, is a crucial part of the national grid.
Power outages in the country are common despite Ethiopia having invested massively in hydroelectric power dams.
It is currently constructing what will be Africa’s largest dam – the Grand Renaissance Dam along the river Nile.
The dam aims to produce 6,000 megawatts of hydro-electric power – the equivalent of six nuclear-powered plants.
The project, which will cost $4bn (£3bn), is however opposed by Egypt which says the dam threatens the water supply to countries downstream.
Talks to resolve the dispute between Ethiopia, Egypt and Sudan have currently stalled.