Firefighters quickly contained a fire at the Base Backpackers in Wanaka this afternoon.
The blaze, thought to have started in a laundry room, was brought under control by the building's sprinkler system and fire crews.
White smoke could be seen billowing out of the windows at the top right hand corner of the building from the road below.
Chief fire officer Bruno Gallaway said it appeared the fire had started in the backpackers laundry room but was contained due to the sprinkler system.
"By the time our guys got up there it was already pretty wet so the sprinklers had already gone off, it shows how valuable a good sprinkler system is."
Mr Gallway said it was difficult to know how much damage had been caused, but it was likely there would be some smoke and water damage.
The building was evacuated quickly and there were no injuries, he said.
Traffic was reduced to one lane from near the corner of Dungarvon St and Brownston St for a short time.
