Tyler Hamilton, 21, of Princes Highway, pleaded guilty in Warrnambool Magistrates Court to criminal damage by fire (arson), reckless conduct endangering serious injury and theft from motor vehicle.

Magistrate Franz Holzer said the nature of the offending was very serious and potentially life threatening.

"I hope you understand how foolish and reckless your behaviour was," he said.

"So easily the situation could have been different and we'd have another hearing altogether. A coronial inquest would have taken place with far more extensive and far reaching consequences."

Hamilton was convicted, placed on an 18-month community corrections order with conditions, including he undergo judicial monitoring and therapeutic treatment for his mental health.

He was also ordered to pay $2000 restitution to the victim.

On November 21, Hamilton invited two men aged 18 and 19 to walk the streets of Port Fairy about 12am.

The trio entered Campbell Street and Hamilton formulated the idea to set fire to a car.

He approached two vehicles and stole two jerry cans containing fuel.

Hamilton poured the fuel onto the ground and the front bumper of a 2010 Ford Focus Hatch located directly outside a residential property.

The 20-year-old owner of the vehicle was inside his house sleeping.

Hamilton then used a cigarette lighter to ignite the petrol which instantly caught fire, engulfing the front of the vehicle in flames.

One of Hamilton's friends feared a neighbouring house would catch fire so knocked on the door to alert the resident.

The trio then walked away from the scene.

Police said Hamilton's two friends were not complicit in the theft or the burning of the vehicle and that the victim's father had only recently purchased the vehicle for his son.

Hamilton and the victim were known to each other as they had attended the same school years earlier.

Hamilton was arrested later that afternoon. He told police that his behaviour was foolish and dangerous but "it seemed like a good idea at the time".

He said he knew the victim but didn't realise he owned the vehicle.

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