The fire broke out in the hotel, located near Gokavaram bus stand, at around 8 pm and soon spread to some nearby shops, police said.
There were hundreds of people at the bus station at the time of the mishap. The spot is close to Puskhar Ghat, one of the bathing sites of the ongoing religious festival.
Five persons received burn injuries and nearly half a dozen vehicles, three of them belonging to police, were badly damaged, they said.
Fire tenders were pressed into service to put out the blaze, which is suspected to have been caused by leakage from a gas cylinder in the hotel, police said.
On receiving the news, Andhra Pradesh Chief Minister N Chandrababu Naidu and DGP J V Ramudu, who are in the city, visited the spot and supervised the fire fighting operation.
They advised people to maintain calm and not to panic.
Talking to the media, Naidu said he has asked officials to ensure the injured persons get quick medical attention.