ARSON had not been ruled out last night as the cause of a fire that destroyed an iconic Ballarat paddle steamer.
The fire in a Gregory St West shed gutted the Golden City steamer about 3am yesterday.
The volunteers who worked for more than two years restoring the 121-year-old steamer were left shattered.
The first owner's grandson said it was like losing a family member.
The boat was stored in a shed shared by a sheet metal factory, which was destroyed.
Gas cylinders and oxy welders caused small explosions in the factory.
The fire started sometime before 3am, with the shed well alight by the time witnesses called 000.
About 40 firefighters battled the blaze, with crews having "no chance" to save the shed or its contents.
Ballarat City Fire Brigade fire officer Wayne Rigg said there was asbestos in the shed and crews could not risk entering.
The asbestos meant fire crews stayed at the scene yesterday while investigators searched for clues.
Police investigating the fire said arson could not be ruled out, and more would be known early next week.
Volunteers had been restoring the Golden City for more than two years, and had almost finished the task when the fire struck.
The paddle steamer was the last of a fleet which sailed Lake Wendouree in the 1800s.
Golden City Paddle Steamer Museum Society president Bob Wuestewald said he was "in a dream-like state" after being called to the fire at 3.15am.
"I was too stunned to really think," he said.
"It just seemed like a dream."
Mr Wuestewald, once the paddle steamer's skipper, said he had looked forward to taking the helm again.
"It was starting to create a lot of interest because it was starting to look so good," he said.
Chris Gill, whose grandfather Thomas was the first owner of the Golden City, said "It was like a member of the family. My dad had so much pride in that boat. It really is a disaster."
The shed owner, Colin Webb, said it was hard to describe his feelings.
The shed and its contents were not insured.
Ballarat Mayor David Vendy expressed sadness for the loss of a heritage icon and the efforts of the volunteers restoring the steamer.
"It's a very, very huge loss for Ballarat and its history," he said.
"It's a very sad day for history and heritage and passionate people in Ballarat."
Cr Herman Ruyg, who helped with the restoration, said he considered the Golden City the "jewel of Lake Wendouree".
Cr Ruyg felt sorry for George Brooks, who led the restoration, and said he "put his heart and soul" into the project.