VIDEO: Kara Irving
Fire crews will be on scene at the Plaster Fun House throughout the day.
Ballarat City Fire Brigade senior station officer Neville Collins said the building still had hot spots which could flare up.
Mr Collins said is was surprising no other building had been damaged in the blaze.
Double brick walls between the neighbours of the building ensured damage was kept to a minimum with Mr Collins saying the Provincial Home Living building suffered minor water damage.
The fire that has has gutted a child play centre in the centre of Ballarat is being brought under control.
Flames engulfed the Plaster Fun House on Grenville Street North as half a dozen fire units battled to control the blaze.
CFA firefighting crews hosed flames several metres high as hundreds of onlookers watched from the car park across the road.
Police were forced to move elements of the crowd back due to fears of toxic fume inhalation.
By 9pm the fire appeared to be contained but not before incinerating both floors of the building.
Marian Baird, an instructor at Absolute Yoga, which operates on the second Floor of the building, said she could smell smoke at about 6pm.
"I was taking a class with about 15 people between 6 and 7pm," she said. "At the start of the class we could smell smoke from the air conditioning but we didn't think anything of it because it was quite mild.
"We went down stairs to see smoke pouring in from the back.
"We didn't panic too much. We were just putting our mats back and then we thought we she leave them and get out in a hurry."
Flames still poured from the front of the stricken building at 8.30pm.
Plaster Fun House proprietor Brad Billings was shocked by the devastation caused by the fire.
"I was notified by a friend there was a fire in the street and came down to be greeted by this," he said.