Two children have handed themselves into police and at least 50 residents have been displaced after a “once-in-a-decade” inferno in inner Sydney.

Witnesses reported seeing a group of young people running from the heritage-listed former hat factory in Surry Hills on Thursday afternoon, shortly before the massive blaze took hold.

As more than 120 firefighters battled to douse the fire, two 13-year-olds approached inner city police stations on Thursday night and began assisting with police inquiries, police said on Friday.

Three or four other children thought to have been inside the building before the fire were urged to come forward with their parents.

The brick-and-timber building, and a neighbouring structure formerly home to karaoke bar Ding Dong Dang, was known for regularly housing 15 rough sleepers.

Police made contact with 13 of those people to confirm their safety.

Within an hour of the blaze beginning, the former factory’s roof collapsed, followed by the floors and parts of the building’s walls, sending red hot bricks tumbling to the streets below.

Local locksmith Phu Tang said he was walking back to his shop when he heard shattered glass hitting the footpath, looked up and saw the building alight.

“The kids … screamed upwards talking to another kid inside the building, asking why he was still inside,” he told Sunrise on Friday.

The intensity of the inferno would not soon be forgotten by the dozens of firefighters who rushed to the former hat factory, Fire and Rescue NSW Acting Commissioner Jeremy Fewtrell said on Friday

“This is really a once-in-a-decade type of fire,” he said.

“It’s a really defining point.

“You’ve got all the dry, very seasoned timber … stacked up, the framework, the building, the floors, the staircases.

“It enabled the fire to spread very quickly vertically.

“In a sense, it’s the perfect set of conditions to have a very intense fire.”

The only reported injury was a minor burn suffered by a firefighter.

Firefighters worked through the night to contain the fire and remained on scene hosing down hot spots on Friday, using a drone to monitor the scene for potential flare-ups.

“It is quite challenging to extinguish the remaining pockets of fire, because of the collapsed debris and material from the buildings that have fallen down,” Mr Fewtrell said.

A tight exclusion zone is expected to remain for at least seven days, displacing at least 50 residents as engineers’ concerns grow about a bulging wall in the factory.

“Whether there’s bits of the walls that need to be knocked down in a safe way, or other bits that need to be shored up,” Mr Fewtrell said.

“The engineers will work through all that.”

Impacted residents are urged to register online with the Red Cross for support.

The former hat factory had been vacant about four months, and there were plans to convert the building into a 123-room, two-restaurant hotel at a cost of almost $40 million.

The neglected building was a disaster waiting to happen, according to property manager Reuben who lives in a neighbouring apartment.

Rushing home as he saw news reports of the fire, he said he was told to stay inside by police as the fire took hold.

“It’s crazy, it was right there. I’ve seen that derelict building for ages and thought it looked like a tinder box,” he told AAP.

“Like, something is bound to happen.”

Due to the size of the fire and the impact on the community, a report will be prepared for the coroner.

Source: AAP