A masked arsonist is on the run after a family home burst into flames and police executed a daring rescue.

The Abbotsford home in Sydney’s inner-west was engulfed by flames about 4am on Tuesday.

First responders found the property well alight upon arrival.

Officers and another occupant used a ladder to rescue an 88-year-old woman who had been trapped on the balcony.

She and three other occupants – two men, 44 and 65, and the older man’s wife, 53 – were treated by paramedics for smoke inhalation.
They are now in a stable condition.

NSW Police believe the fire was suspicious, although Superintendent Christine McDonald said the occupants were not believed to be criminally linked.

“We are working very closely with the occupants of this house … and we will work through that as the hours proceed throughout the day,” she said.

A suspect was seen spreading a form of accelerant, she said.

“A neighbour so bravely confronted [a male suspect] while they were setting the house alight,” McDonald said.

“[The suspect] managed to get away from the scene, but that neighbour is currently assisting police with inquiries.”

Officers could describe their suspect only as male and “wearing a balaclava”. They are also searching for a red Holden Astra the man is believed to have fled in.

Fire and Rescue Acting Superintendent Peter Murray said about 40 crews and 10 trucks attended at the height of the blaze.

At one point, the fire spread to an adjoining house, although authorities were able to contain it within the building.

Firefighters were still working to fully extinguish the fire as of 7.45am, with police investigators ready to take on the scene later in the day.

The suspect is believed to have headed along Great North Road in Abbotsford and Lyons Road in Russell Lee after 4am.

-AAP