The three victims died in their homes close to Funchal's historic centre while local media reported that two others were seriously injured by the raging inferno that has gripped Madeira, a popular tourist destination in the eastern Atlantic.
A vast ball of smoke was seen above Funchal on Tuesday with the evening sky turned orange by the flames, prompting locals to photograph the scene from surrounding hills.
Fires began in the hills around Funchal on Monday night with the situation worsening dramatically on Tuesday evening as strong winds fanned the flames, spreading the blaze to other parts of the city.
Others have been moved to a football stadium to wait for the fire to be tackled, according to Funchal mayor Paulo Cafofo, quoted by the Lusa news agency.
"Roughly a thousand people had to be evacuated from homes and hotels," among them both residents and tourists, he said.
At least one hotel in the city, a popular tourist destination and cruise ship port, was damaged by the blaze but Cafofo said it was "impossible" to estimate how many buildings might have been affected.
Overnight, Portugal dispatched a team of 110 specialists including firefighters, police and doctors to help bolster the island's response to the blaze while the Azores, another Portuguese territory in the Atlantic ocean, deployed 30 men to assist.
Mainland Portugal has also been struck by a spate of forest fires since Friday with the north of the country, where temperatures have surged to 35 degrees Celsius (95 degrees Fahrenheit), particularly badly affected.
On Wednesday about half of the north was on alert for fires with the risk assessed as between "heightened" and "maximum".
Prime Minister Antonio Costa said yesterday he would request assistance from other European countries and Russia if the blazes do not abate by August 15.
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