Visible from right across the city, images of the huge blaze have littered social media as more than 120 firefighters and 30 fire trucks responded to the incident.
"When crews first arrived, we had no understanding of what was in the building so we've spoken to the owner and the occupier and we believe there is some acetone and some oxy-acetylene," incident controller from the Melbourne Metropolitan Fire Brigade commander Ken Brown said.
"Oxy-acetylene is welding equipment and acetone, the best way to describe it is nail polish remover."
"There's been some other explosions that we've had, we've had some forty-four gallon drums explode and fly through the air, which is a concern for our firefighters."
Brown said it is likely to take some hours before the inferno is under control.
Residents within a 2-km radius of the blaze have been urged by authorities to stay inside their homes, shut their doors and windows and turn off all air-conditioning units.
Firefighters were also considering whether to evacuate nearby schools.
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