Detectives suspect squatters are responsible for the blaze that caused structural damage to the building after flames took hold of several floors on Wednesday night.

Experts believe that an electrical fault was not the cause.

They believe someone using the building's upper storeys started the fire on the first floor, but it may never be known if it was intentional or accidental after candles or small fires used for light and warmth burnt out of control.

Structural and technical inspections will be done in the next week to decide the building's future.

The Herald has been told the council was alerted last year to evidence, including makeshift beds, of squatters using the building's disused upper storeys. The rooms were emptied, electricity cut and entries boarded up.

However, a council spokeswoman said last night there was no record of council officers being told of the presence of squatters.

The council has taken a strong stance against several private developers who have allowed inner-city buildings to fall into disrepair, attracting squatters and vandals.

The council bought the Civic Hotel freehold in 2007 and owns all land facing Hunter Street between the Civic Theatre and Auckland Street, behind City Hall and University House.

The land has been earmarked for an ambitious joint development between the council and the University of Newcastle.

Fire crews spent four hours bringing the fire under control after patrolling police saw smoke billowing from the historic hotel after 11pm on Wednesday.

The top floor has been destroyed and several other floors significantly damaged.

The ground floor has suffered some fire damage and smoke and water damage.

Windows into the floors above the ground-floor hotel were found open yesterday.

Licensee Paul Provost said the TAB and poker machines area had been badly damaged, and it was too early to predict when his eight staff could return to work.

"I don't know how to describe it. It is a hindrance, that's for sure," Mr Provost said.

A council spokeswoman said in a statement that a preliminary damage assessment showed roof sheeting could be dislodged if forecast strong wind eventuated.

"As a precaution the adjoining vacant site to the east has been cordoned off," the statement said.

Council officers would inspect the building and report on any structural damage next week.