Firefighters are still working to put out hotspots in the large building on the corner of King and Lonsdale streets, which went up in a huge ball of flames just after midnight.
The building was formerly home to Goldfingers strip club, but the club has not been open for several years.
More than 50 firefighters spent about two hours bringing the fire under control.
No one was injured in the fire.
Police are investigating the suspicious blaze and have set up a crime scene.
Firefighters have said the club appeared to have been home to squatters and that they could not rule out if anyone was in the building when the fire started.
The intersection, which is usually swamped by heavy traffic, is expected to be closed for hours to come.
Its closure is expected to cause commuting issues throughout the day, with motorists, bus and tram services and pedestrians all affected.
Motorists are advised to allow extra travel time and use Spencer Street as an alternative.