A suspicious fire has caused more than $2 million in damage to several businesses on Melbourne's famous Lygon Street restaurant strip.

Explosions could be heard as the overnight blaze tore through a restaurant undergoing renovations.

Citybound lanes of the thoroughfare were closed throughout the morning between Grattan and Faraday streets, in Carlton in Melbourne's inner-north, as firefighters fully extinguished the blaze.

Nearby residents were evacuated from their homes after the fire started about 1:00am on the ground floor of a restaurant and quickly spread to the second storey.

Nearby residents were evacuated as firefighters tried to contain the blaze. ( ABC News )

Explosions were heard before the fire spread to a reception centre next door, causing a wall to collapse into a laneway.

A Japanese restaurant on the ground floor below the reception centre was also damaged.

It took 60 firefighters more than an hour to bring the fire under control.

Authorities are investigating the cause.