UPDATE 11.40AM: A foreign man is presumed drowned, after a tandem skydive went wrong over Lake Wakatipu, near Queenstown.

Two men plunged into the lake, sparking a massive water and air search.

The instructor was quickly pulled from the water yesterday with minor injuries, but there was no sign of the other skydiver. The instructor has since been released from hospital after about 20 minutes in the frigid waters.

Area Commander Inspector Olaf Jensen says searches of the surface of the lake, and the shoreline, were unsuccessful.

He says given the nature of the incident, Police are now looking at a recovery operation rather than a search and rescue.

Police cannot yet name the nationality of the man, but say they are working with consulate staff to inform his next of kin. 

An NZONE skydiving plane is seen during a search and rescue operation taking place on Lake Wakatipu after two skydivers from the company crashed into the lake. (Photo / James Allen)

The NZONE skydiving base is seen after two skydivers from the company crashed into Lake Wakatipu. (Photo / James Allen)

Insp Jensen said it was unclear whether sonar equipment would work because the lake was about 250m deep where the two crashed into it.

Two investigators from the Transport Accident Investigation Commission are also due at the site.

It said the circumstances, as reported, are that during a commercial tandem skydive - where the passenger is attached to an instructor - there was a possible parachute malfunction.

The company involved in the jump, Queenstown-based NZONE Skydive, described the instructor as highly experienced and having completed thousands of jumps.

It's the second incident for the business in less than a year after a crash-landing last January.

It has suspended operations while the search continues.

 - additional reporting, NZN