At least 20 houses have been destroyed and hundreds of residents evacuated in a massive blaze that has torn through one of New Zealand's most idyllic spots.

Dozens of homes at Lake Ohau in the Mackenzie Country are believed to have been destroyed in the major forest fire that is understood to have been sparked by an electrical arc from power lines

And the fire was continuing to spread early on Sunday afternoon, fanned by strong westerly winds.

One of the homes lost to fire at Lake Ohau Village. Photo / Supplied

Fire and Emergency says the 200-hectare fire is burning through pine forest and grass in the Mackenzie Basin. It has 16 crews fighting it with five helicopters in the air and one more to join shortly.

David Stone told RNZ the small village has about 50 houses, many of which he believes have been burnt down, including his own.

"We've been told it's gone. I've got near me a couple that's lived there for 27 years. Their place, two along for us, is probably gone, well I think it has gone.

"Sort of looking over the smoke that's coming down towards Twizel, it's very prominent to my left, it's been moving around - it's peculiar.

"There's a number of lifestyle blocks between the village and where the fire is currently. And probably they've suffered, as well."

One of the homes lost to fire at Lake Ohau Village. Photo / Supplied

Stone said cars had also been burnt out and the area resembles a war zone.

Another Lake Ohau resident has described the horror of being separated from his father in the dark while driving through the "terrifying" forest fire early this morning.

Hugh Spiers, owner of the Barn at Killin B&B, is one of about 200 people gathered at Twizel's events centre after the major blaze started about 3am near Lake Ohau Rd.

"It was like the movies. It was really really scary. The flames were big and smokey, thick with heat, there was no time to even take a photo," Spiers told the Herald.

He received a phone call at 3am warning them to get out urgently.

"We couldn't get out our normal way, we had to cross country through a fire break."

Spiers has since reconnected with his father and all his family and guests have been accounted for.

A major forest fire is burning through pine forest and grass in the Mackenzie Basin, and it's being fanned by strong westerly winds. Photo / Omarama Gazette

He has owned his bed and breakfast for four years and said he had never seen anything like the fire he witnessed this morning.

"I have seen forest fires and the devastation it can cause, but this was way more frightening because there were people involved."

Spiers said there were reports another 100 or so people were at Lake Ohau Lodge where there is no power and phone lines had been cut.

Assistant area commander Stephen Butler said it was a significant fire covering about 200 hectares.

"Unfortunately some houses in the village have been lost due to the fire."

He said fire crews were walking in very difficult conditions.

"It is pretty devastating. Fortunately, the village had an emergency activation plan, they had a siren that they set off really early which let everyone know they had an issue.

"There was a stream of cars leaving the village when our first appliances arrived at 4am."

"We are currently going to talk to those people and give them a bit of bad news of what is actually happening."

He said no one had been reported missing at this stage.

It was too early to confirm what had caused the fire but specialist fire investigators were on the scene, Butler said.

Senior Sergeant Paul Robertson said several agencies were now supporting the evacuees, especially those who had lost their homes.

"We've got Civil Defence on board and my understanding is that we'll be contacting Victim Support as well. At this stage we believe we've lost some houses to the fire."

Police have been evacuating all the residents of Lake Ohau Village, as well as campsites and other properties in the vicinity.

"The police and fire [Fire and Emergency] are currently searching through the village to make sure everyone's accounted for."

Robertson says residents were initially evacuated to the nearby Ohau Lodge.

However, Civil Defence says they are now being directed to the Twizel Events Centre.

Stone said three helicopters were helping fight the blaze, which had reached the lake.

"There's been extraordinarily strong winds here - Ohau means place of wind, and it's certainly lived up to it."

Police say Lake Ohau Road, off State Highway 8 in the Waitaki district, is currently closed because of the fire.

Police are asking motorists to avoid the area while emergency services are at the scene.

"We've got Civil Defence on board and my understanding is that we'll be contacting Victim Support as well. At this stage we believe we've lost some houses to the fire," said Robertson.

The police have been evacuating all the residents of Lake Ohau Village, as well as campsites and other properties in the vicinity.

"The police and fire [Fire and Emergency] are currently searching through the village to make sure everyone's accounted for."