Hurricane Olaf weakened to a Category One storm on Friday as it swept through Mexico's Baja California peninsula and as the disaster-prone country recovered from a 7.1-magnitude earthquake and major flooding.

But Olaf still threatened more damage, causing "hurricane-force winds and heavy rainfall" over the Baja California Sur, the US National Hurricane Center (NHC) said in its latest report.

Olaf made landfall near the city of San Jose del Cabo late Thursday as a Category Two storm near the beach resorts of Los Cabos before it dropped to the lowest on the five-level Saffir-Simpson scale.

A hurricane warning was in effect for a stretch of Baja California coastline from Los Barriles to Cabo San Lazaro.

"Preparations to protect life and property should be rushed to completion," the NHC said earlier as the storm approached.

A dangerous storm surge was expected to be accompanied by large and damaging waves near the coast, the NHC said, warning that heavy rainfall may trigger "significant and life-threatening flash flooding and mudslides."

Authorities set up storm shelters and school children in the state of Baja California Sur were told to stay home on Friday.

Ports were closed for smaller boats and flights were cancelled at the Los Cabos and La Paz airports.

The storm was forecast to churn over the southern coast of Baja California before heading west out over sea again late Friday or early Saturday.

"Gradual weakening is expected through Friday as Olaf interacts with land. Further weakening is likely over the weekend after Olaf moves away from Baja California Sur," the NHC said.

The hurricane comes as when Mexico recovers from a 7.1-magnitude earthquake and major flooding in the disaster-prone country.

Fourteen patients at a hospital in the town of Tula in the central state of Hidalgo died this week after flooding disrupted the power supply and life-sustaining oxygen treatment.

Tens of thousands of residents were affected after a river in the town burst its banks, forcing people to leave their homes.

Jenny Casillas, a housewife in her 40s, told AFP on Thursday that the water reached the roof of her house in less than 10 minutes

"From one moment to the next, everything got out of control," she said.

Then came the earthquake that left at least one person dead on Tuesday in the southern state of Guerrero, damaged buildings and was felt hundreds of kilometers away.

"The rain didn't let up and then to top it all came the earthquake," said Marisela Maya, 31, who works at a clinic in Tula.

"It will be difficult for us to climb out of this situation," she said.

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