A neighbour, Wayne Schmelz, raised the alarm after hearing what he described as a "pop" sound, and looked up to see flames a metre high through the windows.
"It started in the living room, I heard a pop and saw the flames and I thought `what are they doing in there?'."
"It must have hit the drapes because up she went and within five minutes the whole room was totally involved," Mr Schmelz said.
Two Fire and Emergency NZ appliances from Wanaka, one each from Luggate and Lake Hawea, and the command unit from Alexandra attended.
Wanaka volunteer deputy fire chief Tony Wellman said no-one was at home when the fire broke out but a female occupant, who had been away from the house for an hour, returned to find it ablaze.
Mr Wellman said he thought it unlikely the house could be saved as it was "structurally very damaged".
It had been an old timber home and the wood was very dry which would have contributed to the speed of the fire, he said.
Fire investigators say the cause of a fire in a Wanaka house on Sunday morning was ''not suspicious''.
Fenz fire risk management officer John Smalls said however it would be quite a big job establishing the actual cause.
Mr Smalls is leading a team of investigators and said this morning he expected they would be on the scene most of today.
