Can you please help me out on what is to be done?
Because they are both female, they are going to have to work out the pecking order. Right now the Terrier is being assertive and trying to be top dog in the household. The Terrier is engaging in dominant, agressive behavior. Something to consider: the pup is 6 months and this is the fall, so your new pup may be heading into her first heat. (You didn't say if either dog was spayed.) It doesn't excuse her behavior, but it might be part of the explanation for it.
The Poodle is demonstrating submissive, frightened behaviors. Possibly due to the difference in size, the aggressive play by her new sis, or it just might be a personality trait. Typically the older dog would be established as the 'ruler'.
It's hard to say if they are actually fighting or not, primarily because dogs tend to play like this, but I think dragging the Poodle around by the neck is a bit much.
I'm not sure what you meant by interferring... but, you are the parent, they are the kids. Turn and say, "(Terrier's name) NO!", in a firm no-nonsense kind of way. This should give you a few seconds to seperate them and make sure the Poodle will be alright. Try to avoid calling the Terrier a 'bad dog', instead focus on 'good dog' comments to encourage proper behavior. Please make a conscious effort to teach/train the Terrier not to be so rough.