A fire has engulfed and completely gutted a multi-storey building in central Sydney, threatening nearby buildings and casting a pall of dark smoke across the city.

More than 100 firefighters battled the blaze at a factory in inner-city Surry Hills after the fire broke out in the afternoon, consuming the building’s seven storeys as thousands watched on.

The factory fire was visible at 4.40pm between Randle Street and Randle Lane, near the city’s Central Station.

The factory’s roof collapsed before the buildings walls fell in shortly before 5pm.

“The building is currently totally engulfed in flames,” a NSW Fire and Rescue spokesman told AAP on Thursday.

“We don’t know what’s caused it … we’re working to contain the source but it’s threatening adjoining buildings.”

An inferno inside the building had spread to a number of neighbouring buildings, including apartments, Fire and Rescue NSW said on Thursday evening.

Residents from a neighbouring apartment were evacuated in the afternoon after spot fires broke on apartment balconies, News Corp reported.

The factory was reportedly empty when the fire broke out but was being used as a squat by people experiencing homelessness, News Corp said.

Some 25 fire trucks were on the scene as firefighters worked to contain the blaze, spraying the building from the street and from extension ladders.

Neighbouring apartments in the densely-populated area were also being doused with water to protect them.

Footage showed walls collapsing and a vehicle on fire nearby.

Neighbouring streets and laneways have been closed as a dark plume of smoke hangs across the central city.

Locals were urged to stay away from the area and listen to advice from police and firefighters.

No casualties have been reported.

Buses have been re-routed to avoid the area, and the nearby light rail has been shut down but trains continued to operate at Central Station nearby.

“Terrible fire in Surry Hills in my electorate,” Sydney federal MP Tanya Plibersek wrote on Twitter.

“Please stay safe and listen to instructions from emergency services.”

Source: AAP