One person was injured in a massive fire that destroyed one of Yangon's best-known hotels on Thursday, sending clouds of dark smoke billowing over the centre of Myanmar's largest city and triggering an hours-long battle to put out the flames.

It was not immediately clear what caused the fire, which broke out around 3:20am at the teak-and-stone Kandawgyi Palace Hotel overlooking a picturesque inner-city lake, authorities told Reuters.

There were no fatalities and only one Chinese citizen was injured, said Yangon police colonel Myint Htwe.

The fire had been mostly extinguished by 7:00am and guests have been shifted to nearby hotels.

The hotel is owned by Htoo Group, chaired by business tycoon Tay Za, who until last year was on the list of United States sanctions for his close links to Myanmar's former military regime.

Myanmar's civilian-led government, helmed by Nobel laureate and former dissident Aung San Suu Kyi, is grappling with the aftermath of a harsh military crackdown that has driven out more than 500,000 of the country's Rohingya Muslim minority.