The 20-inch pipe gave way under 40th Street and Seventh Avenue at 3am on Tuesday, sending rushing water onto the street.
Although only a few inches deep, videos showed the water cascading down the stairwells into the busy Times Square subway station, soaking train platforms.
It took crews about an hour to find the source of the leak and shut the water off, said Rohit Aggarwala, commissioner of New York City’s Department of Environmental Protection.
The excavation left a big hole at a busy city intersection where workers dug with heavy equipment to get to the broken section of pipe.
Although surrounding streets were open by rush hour, subway services were suspended through much of Manhattan on the city’s 1, 2 and 3 lines, because they run directly under the broken pipe.
Many of New York’s 6,800 miles of underground water mains were built in the 19th century, and even those built with sturdy cast iron pipes typically only have a lifespan of 120 years.
City officials said they had spent $1.9 billion (£1.5bn) in the past three years upgrading outdated water and sewer lines.
The ground beneath Manhattan also contains a steam energy system and an electrical system that rely on components buried many decades ago.
In 2007, an 83-year-old steam pipe exploded near Grand Central Terminal, sending a geyser of scalding vapour into the air and killing one person.