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By early Tuesday, 7 million customers shivered in the dark in at least 10 states and the District of Columbia.
Sandy also claimed at least 16 lives across the United States, bringing the total number of deaths to at least 84 after the storm wreaked havoc in the Caribbean.
President Barack Obama has signed disaster declarations for New Jersey and New York.
A levee break in Moonachie, New Jersey, sent authorities scrambling in boats to rescue trapped residents in several towns.
"Within 30 minutes, those towns were under 4 or 5 feet of water," said Jeanne Baratta of Bergen County police.
She said hundreds -- possibly 1,000 -- people need to be rescued Tuesday.
"Our town's in real trouble right now," Little Ferry Police Chief Ralph Verdi said. About 75% of Little Ferry is covered in 4 to 6 feet of water, he said.
Meanwhile, stench of smoke permeated across flooded streets as fierce winds and and rising waters shorted power lines and sparked fires in places such as Lindenhurst, New York.
At least 50 homes burned to the ground in the Breezy Point neighborhood of Queens, fire officials said, though the cause of the blaze was not immediately released. More than 200 firefighters battled the leaping flames.
Elsewhere in New York City, emergency backup power failed and 10 feet of water flooded the basement of NYU Langone Medical Center, prompting the evacuation of 260 patients. Nurses manually pumped air to the lungs of those on respirators.
Atlantic City in New Jersey became an extension of the Atlantic Ocean. Seaweed and ocean debris swirled in the knee-deep water covering downtown streets.
And in Connecticut, the emergency management office sent out an ominous tweet to trapped residents: "If u find urself surrounded by H2O, call 4 help if u can & then get 2 highest level of home. Hang a white sheet out a street side window."
Along the East Coast, residents reported images they'd never seen before.
"We just looked out the window and there's this river flowing through the middle of Manhattan," said Earl Bateman, a stockbroker who has lived in New York for 30 years.
Like many New Jersey residents, Montgomery Dahm stared in awe at the feet of water that deluged Atlantic City.
"I've been down here for about 16 years, and it's shocking what I'm looking at now. It's unbelievable," he said. "I mean, there's cars that are just completely underwater in some of the places I would never believe that there would be water."
More fury to come
But the weather nightmare isn't over yet.
Forecasters says the entire northeast corridor of the United States will bear the brunt of Sandy.
Fierce winds will blow from northern Georgia into Canada and as far west as Lake Michigan. Heavy rains will soak New England and parts of the Midwest.
And a blizzard spawned by Sandy will bring 2 to 3 feet of snow to the mountains of West Virginia by Wednesday morning.
"It's three feet of heavy snow. It's like concrete," said meteorologist Reed Timmer, who is riding out the storm in Elkins, West Virginia.
Thousands of flights will remain grounded Tuesday. Federal government offices will stay closed. And it will take between 14 hours and four days to get the water out of the subway tunnels in New York City.
"The New York City subway system is 108 years old, but it has never faced a disaster as devastating as what we experienced last night," said Joseph Lhota, chairman of New York's Metropolitan Transportation Authority (MTA). "Hurricane Sandy wreaked havoc on our entire transportation system, in every borough and county of the region."
The full scale of Sandy's wrath has yet to be determined. But according to a government prediction, Sandy's wind damage alone could result in more than $7 billion in economic loss.
Power outages spanned from Virginia to Maine, and the iconic Manhattan skyline turned eerily dark.
"This will be the largest storm related outage in our history," said Vice President John Miksad of power company Con Edison.
After killing 61 people in the Caribbean, Sandy made landfall Monday night in southern New Jersey, sending waves of water into major cities along the East Coast.
Officials blame Sandy for at least 15 deaths in the United States. Several, including an 8-year-old boy in Pennsylvania, died after they were struck by a tree or tree limb. Another death was reported in Canada, where a woman was struck by flying debris -- bringing the overall total to 81.
Hardik Rajput of Nassau County, New York, couldn't believe the sight of waves crashing over the height of cars.
"To be honest, I was just stunned," he said. "I've never seen that. Just to see it on the street level was astounding."
In New York, Manhattan's Battery
Park recorded nearly 14-foot tide, smashing a record set by 1960's Hurricane Donna by several feet.
Five hours after making landfall, Sandy still packed hurricane-force winds as it swirled about 10 miles southwest of Philadelphia.
As residents in New York and New Jersey surveyed the flooding left by Sandy, many discovered their high-rise apartment buildings are now islands.
"I am looking outside of my 6th floor apartment, and I see that a new lake has formed in the parking lot adjacent my building," New York resident William Yaeck said. "I would be concerned, but now my building has a view of the river."