A pilot and three passengers narrowly avoided disaster after a safety parachute allowed their light aircraft to crash-land in front of a house in Australia's Blue Mountains.

All passengers on board escaped serious injuries after the Cirrus landed in front of a home in Lawson, west of Sydney, on Saturday. One passenger was taken to hospital suffering from neck pain.

The Cirrus SR22 aircraft began spiralling towards the ground after suffering engine problems at an altitude of 4,000ft.

The pilot activated the light aircraft's inbuilt parachute and managed to dodge houses and major power lines to drift to the ground.

Local resident Robert Ross, who witnessed the plane landing, said it would have crashed into his house if it had not been for the parachute.

"I looked up and the engine started to splutter," he told the Sydney Morning Herald. "He got it going again and then it went dead.

"It then started to go into a spiral. I thought the pilot was going to eject but it all happened too quick. I started yelling out to my wife: 'There's a plane going to crash into the house'."

Allan Bligh, president of the Sydney Flying Club, told the Herald that Cirrus light aircraft are fitted with a handle in the cockpit which releases a cover plate when pulled to deploy a parachute.

"Then the aircraft is supposed to drift slowly to the ground but it doesn't always work to that effect - weather and other things can play havoc," he said.

"There are a number of manufacturers who decline to use them and believe a controlled forced landing, which you are taught from your early days of flying, is a far better system than the deployment of a parachute."

Cirrus says that its safety parachute has saved 87 lives as a result of pilots pulling the emergency lever in time to avert a disaster.

Watch footage of the Cirrus plane landing below: