Fire crews have been out in force tackling the blaze which has destroyed the Moorfield Hotel.
Chief fire officer for the isles Matt Mason said 10 appliances from across Shetland were attending the scene at the height of the blaze.
Other firefighters are due to attend from the mainland in order to provide support.
Mr Mason said crews had to fight the fire from outside, not least because it was unsafe for them to enter the building which has been collapsing in stages throughout the day.
“In the early hours of this morning we were called to a fire in the Moorfield Hotel. Two appliances from Brae were initially deployed, he said.
“On arrival they were met with a developed fire within the hotel with smoke and flames issuing.”
Extra appliances were summoned and, when the blaze was reaching its worst, 10 crews were on the scene.
Mr Mason said the fire service had received assistance from police and ambulance services as well as Sullom Voe operator EnQuest which had sent extra cover and a water bowser to help deal with the fire.
“When I arrived there were smoke and flames issuing from the roof of the building,” he said.
“The building has shown signs of collapsing, and we have had to withdraw to a safe area. The building has been performing as you would expect.”
Residents had told of hearing pops and bangs as gas cylinders inside the building have exploded.
Mr Mason added: “”We were made aware straight away by the responsible person we met at the incident about the location of gas cylinders that are used.
“We won’t be entering the building – the building presents too much of a risk for us to enter it.”
He paid tribute to the work of fire crews who had worked throughout the night, and to members of the community who had supported them through the hard night’s work.
“The crews have really worked well and the community as well have really worked for them – they have been out in force making sure the guys are fed and watered so that is really heartwarming to see.”
During the day smoke has continued to billow from the remains of the hotel and drift from the burning building – thankfully – away from nearby residents.
He said it was a “devastating fire at what is a trying time already”.
But he said he felt reassured and thankful that there were no injuries as a result of the blaze.