Video shot by a Portuguese Air Force plane shows the migrants wearing orange life vests jumping from the black dinghy after flames erupted near the craft's outboard motor.
The fire quickly spread and left burning debris on the water. Some migrants clung to what was left of the rubber craft.
A Portuguese Air Force statement says there was no obvious reason for the fire off the Spanish coast Sunday.
The plane coordinated a rescue effort, dropping a life raft into the sea and calling a nearby fishing vessel.
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