A fire in an abandoned factory in Footscray may be a triple homicide, with the blaze in the tiny alcove where three squatters were living being treated as suspicious by arson detectives.

Three bodies were found after fire tore through the room, which was once a small storage space, at the rear of the former rope works factory along Kinnear Street in Melbourne's inner-west on Wednesday night.

Police suspect it may have been lit by someone else outside the premises and detectives have been canvassing nearby houses for witnesses and CCTV footage.

But arson squad Senior Sergeant Brad Nichols said it was too early to say if it was a triple homicide or a tragic accident.

The blaze was so intense, police have notbeen able to identify the three victims, with forensic testing under way.

Senior Sergeant Nichols said the fire was suspicious, with a fuel can found outside the alcove in the gutter.

"There's a number of reasons [why we think it's suspicious] and I won't go into those at the moment, but our forensic team have indicated some things to us," he said.

"There was a fuel can located at the scene, but we're not sure if that was a part of it."

Neighbour Adi Mangidi, who lives nearby, said he heard screaming about 11.30pm.

He saw his neighbours run out with buckets of water to douse the flames, but the fire was too large, he said.

"I didn't know people were inside. I thought they screamed and ran away," he said. "It's very horrible."

Locals said there had been two men and a woman squatting in the room for between six months and a year, and regularly locked themselves inside at night for security.

Lately, they had been leaving the doors open because of the warmer weather, but police were unable to say whether they had been locked inside when fire broke out.

A local said he regularly exchanged greetings with one of the men, who looked to be in his 30s or 40s, and was a "really gentle, calm, relaxed person".

The local said the man often had his white car – either a ute or station wagon – packed with his belongings parked nearby. The vehicle was nowhere to be seen on Thursday.

The room too had been crammed with meagre belongings. Another resident said the squatters had been "trying to make a go of it", with clothes hanging up, succulents in pots out the front and a mat at the door.

They were also regular customers at a milk bar around the corner, with one of the men and the woman visiting every morning to get money out from the ATM and to make a phone call.

Questions now turn to the response from both the developers who owned the site and the local council given at least one report was made to authorities six months ago.

The Kinnears Rope Works factory on Ballarat Road had closed in 2002 and had been slated for redevelopment into an apartment complex.

Several parts had been leased-out over the years, however, VCAT had recently approved a plan from Chinese company R&F Properties to develop the block. Parts of the block were heritage listed.

Across the road from the Ballarat Road factory is a site where the Harris family plans to build portable homes for disadvantaged people on vacant VicRoads properties in a unique project to tackle the city's homelessness crisis.

Their plan is to build 57 studio-sized units on nine disused housing blocks, according to the Star Weekly. Three of the sites have received the approval of Maribyrnong council, while six remain under consideration.

Footscray youth worker Les Twentyman described the deaths as a tragedy and called for more housing to be available for the homeless.

"This is what happens when people live in such appalling circumstances," he said.

After police had finished their examination of the scene on Thursday afternoon, the bulldozers moved in, scraping up the charred remains of the few belongings of the squatters.