Lynmore residents say they watched in fear their homes would catch fire as their neighbour's house turned into a ball of flames at the weekend.
The residents, who live on the corner of Tarawera Rd and Moana Tce, woke about 2am on Saturday to screams and loud noises to find a two-storey house down a driveway was alight.
Rotorua police crime prevention manager Inspector Brendon Keenan said the fire started in the garage, which was attached to the house, and police were investigating the cause.
Mr Keenan said it wasn't clear how and where exactly the fire started.
Fire safety investigator Stuart Craddock said the cause was still unknown and he was working with insurance investigators and the police. He said there were a few scenarios to investigate.
He said the fire damaged the garage and a room above the garage. There was smoke and heat damage throughout the rest of the house, he said.
No one was at the house today when the Rotorua Daily Post went to the scene but neighbours said a woman lived there with two school-aged children.
Heather Logie, whose house is directly next to the house that caught fire, said she woke to hear her dog barking and she and her partner got up to have a look.
"I saw my neighbour running through our garden trying to get to the hose ... My partner and [the neighbour] had two hoses trying to reach the garage over the fence but it just wasn't making any difference ... It was very scary."
Logie said her neighbour had earlier been screaming at the woman and children to get out of the house but then confirmed they were out safely and were standing on the front lawn.
She said they were all worried the fire would spread, given there were two to three houses very close as well as overhanging trees.
"We are from Australia where fires move very fast. We were just lucky it was a really still night."
Another neighbour, who only wanted to be known as Margaret, said the fire got "too close for comfort".
"I woke at 2am and heard a noise and heard all this shouting and voices."
When she saw the "glow" of the fire she immediately rang the fire brigade.
"The flames and the roar of it. You should have seen the glow ... It was very, very scary."