Businesses to the south of the massive fire that engulfed a factory in Malaga this morning are being evacuated.

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Picture: Sharon Smith

The threat of toxic smoke from a fire that engulfed a factory in Malaga this morning hs eased, with testing now being confined to an area close to the blaze.

The fire broke out about 7.20am and has destroyed the Marshall Road Atama furniture factory and more than $3 million of stock.

Testing had been conducted about 5km from the fire.

Premises nearby will remain closed.

FESA spokesman Allen Gale said earlier that traces of toxins had been detected at the scene and several businesses 150 metres each side of Mulgul Road and Energy Street were being evacuated as a precaution.

"We're worried that as the smoke cools it will lower and that toxins might effect people in the wind's path," he said.

"Five kilometres south we are getting reports of a burning plastic smell but there is no toxicity registered.

"There is quite a bit of fuel in there. There is a concern there is urethane, glue, thinners ... there is obviously timber."

Mr Gale said there were also gas cylinders inside the building.

"It is not a case of firefighters rushing in there to deal with it," he said. They are dealing with it from the outside in."

The factory's concrete walls have collapsed and the roof has fallen in.

More than 30 firefighters are at the scene and are expected to remain there most of the day.

Atama employee Brock Donale, 18, who was working inside the factory, said he believed the blaze started after an exhaust fan malfunctioned.

Mr Donale, an assembler, said he was about 30 metres away from the polish shop where the fire started.

"We saw the flames and just ran," he said. "Everyone was shouting 'fire, fire, get out, get out'."

He said about 25 workers were inside at the time after starting their shift at 6.30am.

The Fawkes family-owned business has been operating for 25 years and specialises in commercial furniture for aged care and hospitality markets.

The owners, too distraught to talk, are watching on as firefighters contain the fire.

Paul Dimomarcos had just started the first day of a new job as an upholsterer at Atama when he was told to evacuate.

"I left my wallet on the bench and rushed out," Mr Dimomarcos said. "I really, urgently needed this job and had been there only 20 minutes ... it's not what I expected.

"Lucky we got out when we did - the flames engulfed the building in seconds."

Adam Markey, who works at a nearby business, told thewest.com.au, that there was thick smoke and flames billowing from the premises.

Mr Markey said when the fire started there were several explosions.

"For the first 20 minutes I heard half a dozen loud explosions," he said. "There's thick smoke and flames and more than a dozen fire crews."

It is understood firefighters are trying to stop the blaze spreading to a neighbouring factory.

Main Roads warns motorists that traffic diversions are in place and Marshall Road has been closed in both directions.

Eastbound traffic has been diverted to Bellefin Drive and westbound traffic to Beringarra Avenue.

Picture: Sharon Smith