Flames and clouds of thick black smoke could be seen at Stanlow Oil Refinery in Cheshire in images posted online.
All staff at the site have been evacuated and are accounted for, Cheshire Fire Service said.
The force, which was called at 2:16pm, said it believed the blaze to be at a manufacturing building inside the plant.
The refinery employs more than 900 staff and an additional 500 on-site contractors. The facility supplies 16 per cent of all UK road transport fuels, according to operator Essar Oil UK.
Six fire engines are attending the scene in Oil Site Road.
Brian Howell, 60, said he was relaxing in the Eastham Ferry area, around eight miles away, before he “heard a loud ‘whoosh’ type explosion”.
He said: “I looked over to Stanlow and there was an aggressive fire and lots of black smoke.”
The fire has not disrupted the plant’s operations, a spokeswoman for Essar Oil UK said.
She said: “Earlier this afternoon a fire occurred at the SHOP chemical plant. Both the site emergency services and Cheshire County Fire Service are in attendance to deal with the incident.
“All personnel have been accounted for. Refinery operations at Stanlow remain unaffected.”
As of 3:30pm the force said the fire was confined to the site and crews were using a ground monitor and hand-held monitor to extinguish pockets of flame.
Firefighters worked with on-site staff to deal with the unfolding emergency.
Stanlow has a team of 25 full-time staff to allow for immediate action to prevent potential catastrophes.
Stanlow produces 4.4 billion litres of diesel and three billion litres of petrol annually, according to Essar Oil UK.