The fire started in a back room on the second floor of the building about 2.20am yesterday.

About 300 people were inside.

Burnie Fire Brigade senior station officer Rob Deverell said it was believed the fire was deliberately lit on a double bed in a second-floor room.

"There were no electrical appliances in the room, and where the fire started we eliminated all accidental causes," he said.

"Because no one had been in there for a week it has been classed as a deliberate act by a person or persons unknown."

Mr Deverell said that when firefighters arrived at the scene, staff had managed to evacuate most of the building, but a few people remained unaccounted for.

Tasmanian Police moved people away from the entrance to allow easy access, as 300 to 400 people stood in the street.

"There were flames coming out of two bedroom windows, and we were told that there were people unaccounted for on the second floor," Mr Deverell said.

Two firefighters entered the building with breathing apparatus in search of the people.

"We left the fire burning for a little while because people were panicking about the people who were up there," he said.

The fire spread to the roof space and along the ridge capping, and a snorkel platform was used to gain entry into the roof.

The Somerset brigade assisted the Burnie crew.

Mr Deverell said being able to adequately respond to a fire of this size was a struggle at first.

"There were only four of us, one outside and two inside plus myself, and we were on our own until back-up arrived," he said.

"In Hobart, if it was something like this, they would have five career crews, that's 20 to our four, and we rely on volunteers."

The fire was contained to two rooms and the roof space, but Mr Deverell said there was a lot of heat, smoke and electrical damage and the bottom floor was water damaged.

Mr Deverell estimated the damage between $400,000 and $500,000, but yesterday afternoon said the damage could be double that.