The first firefighters on the scene at the Octopus blaze were forced back out of the building as they tried to tackle the flames shortly after 04:00.
Guernsey Fire and Rescue Service Station Officer Joyce said nine crew members and two water tenders went to Havelet at 04:09 on Saturday morning after the first 999 call was made.
It was immediately apparent that this was a "serious fire" and additional crew and tenders were called out, including the fire service turntable ladder, with police and civil protection volunteers also called to the scene.
There have been no reported injuries at the time of writing but the ambulance service was also on the scene.
Station Office Joyce said that "smoke and flames were going through the roof" when the first fire fighters tried to enter the Octopus restaurant shortly after 04:00.
He said the first firefighters on the scene tried to get into the building but the "deep seated fire" forced them to retreat.
They changed tactics and started fighting the fire from outside - with water being pumped on to the building via the turntable ladder which was positioned at the bottom of the Val de Terres.
By midday there was still smoke pouring from the building including some toxic fumes.
Station Officer Joyce said this is not a public health hazard but anyone in the vicinity should keep their doors and windows closed to keep the smoke out.
Pictured: By Gerry Loughlin.
Guernsey Police said "all lines of enquiry at this very early stage are open."
A spokesperson said: "If anyone saw anything suspicious or unusual in the early hours of this morning around the area of La Vallette to contact us at the police station on the main number 01481 222 222."
The emergency services will be on the scene at Octopus for the foreseeable future, with roads in the surrounding area remaining closed including the Val de Terres, Havelet, and La Vallette.
Members of the public are asked to adhere to all road closures including the areas which are out of bound to pedestrians such as the South Esplanade.
Pictured top: By Emma Clayton.
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