First crews at the scene reported outside sheeting and scaffolding at the site were alight, and the site had been evacuated.
Flames leapt up a building that is being demolished at the One Circular Quay site where a residential and hotel development is under construction.
Four crews were at the scene at Circular Quay, and eight more were on their way before 11am on Tuesday (NZ time) to the fire at Pitt Street and Alfred Street, a Fire and Rescue NSW spokesman said.
As flames quickly spread, workers inside the building were evacuated, and witnesses reported several nearby buildings were also evacuated.
The fire is at the site of the old Gold Fields House building.
Circular Quay station was evacuated.
Neil Van der Hoek, who works on the 22nd floor of a building opposite the fire, was one of those who heard and felt the explosions.
Thirteen people were treated for minor smoke inhalation, a NSW Ambulance spokeswoman said. "We could feel the heat and explosion through the window", he said.
"There were two workmen trying to put the flames out from the roof with a small hose", she said.
So far, there are no reports of injuries, and the fire is now under control, but the footage circulating on social media from earlier this morning is pretty dramatic.
No trains are stopping at Circular Quay, St James and Museum, Transport New South Wales has tweeted.
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