Three fire appliances were needed to put out the fire in a bedroom in a villa in Chambers St last Thursday.
A fire communications spokesman said the student flat was well alight when appliances arrived about 12.30pm and the fire had moved to the ceiling.
A man was treated at the scene for smoke inhalation.
Neighbour Sam Murray said he heard a smashing sound and saw smoke and flames "gushing" through a broken window next door.
He called 111 and ran outside where he saw a man standing in the back yard "looking a bit shocked".
"The flames were pretty close [to his house]."
Senior Station Officer Dave Marsh, of Dunedin City, said it was thought the blaze was caused by incense left burning which resulted in extensive fire damage to the bedroom and heat and smoke damage to the rest of the house.
The house had smoke detectors but they were not installed correctly, he said.
The Otago Polytechnic Students Association has suggested tenants and landlords ensure houses with indoor fireshave the chimney cleared before winter.
Association co-president Ryan Wardurged students to check smoke alarms in flats, and make sure tenants had an escape plan in place in case of an emergency.
OPSA co-president Meegan Cloughley said with the increase in the use of heaters and indoor fires, students needed to remember basic safety rules.
"Be sure to keep combustible materials away from heat sources, and don't leave heaters and such on while away on break,"she said.
