Ten firefighters suffered minor injuries as they fought to put out the flames at the plant in Smethwick, just outside Britain's second city Birmingham in central England, the local fire department said.
The fire sent a massive plume of smoke rising 1,800 metres into the sky which could be seen for miles around.
"Two officers have been hospitalised and eight have been treated at the scene," a spokeswoman for the fire service told AFP.
Emergency services were called to the fire at the J&A Young plant, which is on an industrial estate, at around 0330 IST last night.
Paper sky lanterns are increasingly popular at British celebrations, but there are growing concerns about their potential to cause fires.
The lanterns -- which are essentially small hot-air balloons -- have been banned in countries including Australia and the US states of Hawaii and Illinois.
Manufacturers say they should never be used near dry crops or within five miles of an airport.
