Photo: RNZ / Richard Tindiller
The children were in a vehicle parked at Shannon Memorial Hall for a community event on the afternoon of Matariki Day when police said several cars were hit by a driver trying to escape in a stolen car.
RNZ understands angry locals confronted the driver at the scene.
The police officer received injuries to their head while attempting to arrest the driver, police said.
One man was arrested and the injured police officer was receiving medical attention after the incident.
The stolen vehicle was first spotted in Foxton shortly before 12.30pm on Friday, but was not pursued, police said.
Road spikes were then used in Shannon, about 16 kilometres away, and while the driver avoided the spikes, their vehicle hit several parked vehicles a short distance away.
Horowhenua District Council chief executive Monique Davidson said the community had been shocked by what happened, and some elements of the Matariki celebration were not able to go ahead due to the incident.
Davidson said her staff had told her people at the event intervened as there were concerns about safety following the crash. However, she believed reports that those who helped apprehend the driver were an "angry mob" were unfair.
"What I've heard from my staff is there were members of the community that became involved to ensure that the offender did not get away as the alleged offender left their vehicle, but as I say I was not there and I have not seen any formal reports."
Horowhenua District mayor David Allan said the crash had been distressing for the wider community.
"To have an incident like that happen in the midst of Matariki and directly affecting those involved in Matariki in Shannon is deeply disturbing both for that little community - it's a lovely little community - but also for our district."