The blaze on State Highway 1 started in the unoccupied villa halfway up the main northbound route out of the city about 10.15pm before spreading to the neighbouring property on the corner of Pine Hill Rd and Fea St.
Firefighters who had sped to the scene in five appliances fought to contain it. Two people escaped safely from the Fea St property, which was damaged by fire.
Senior Sergeant Brian Benn, of Dunedin, confirmed the property where the blaze started was unoccupied.
Police did not know what started the fire and if it was connected to the fireworks being set off last night in the aftermath of Guy Fawkes.
The spectacular flames drew a crowd of more than 100, with one man telling the Otago Daily Times he had driven from Portsmouth Drive beside Otago Harbour after seeing the fire.
At Prospect Park, above Woodhaugh Gardens, there was no more room to park as curious people gathered to watch the fire on the other side of the gardens.
State Highway 1 north out of Dunedin was closed as 30 firefighters battled to bring the fire under control.
