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.

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 haven't even been able to identify the three people horrifically killed inside, with forensic testing underway to provide answers.

"We won't even go into what sex they were at this stage," Senior Sergeant Nichols said.

But he 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.

"He was a really gentle, calm, relaxed person," he said.

"He didn't bother anyone, he's just a lovely guy."

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.

"I saw two blokes having a yarn with each other like anyone would in their house," she said.

"You could tell people were trying to make the best of it."

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 to move the squatters on 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.

Several parts of the block were heritage listed.

City of Maribyrnong mayor Catherine Cumming confirmed residents complained to council six months ago about the squatters, and officers had located a man and had tried to connect him with services.

Council said he had agreed to move on and since then, they had received no complaints. Most nearby residents said they never had a problem with the squatters.

It's also understood the company had put their own locks on the doors, but the squatters had broke the locks and put their own back on

A source also said the company had very recently received a notice to board-up the area, but had not yet acted.

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.