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Police investigating suspicious fire that caused $500,000 damage at Circle Coffee House in New Norfolk

Firefighters smashed through the door of a neighbouring building to access the blaze. (Supplied: Damian Bester)

A popular cafe in southern Tasmania has been gutted by fire, with police saying the deliberate act caused $500,000 worth of damage.

Emergency crews were called to Circle Coffee House in New Norfolk around 5:20pm on Saturday to find the family-run business engulfed in flames.

One witness described seeing thick, black smoke billowing from underneath the front door of the cafe, and firefighters smashing through the door of an adjacent business to gain access to the blaze.

A physiotherapy business has also suffered smoke and heat damage.

Roads in the area were blocked off for several hours as multiple units from the Tasmania Fire Service worked to extinguish the blaze.

The fire took hold in the evening. (Supplied: Damian Bester)

"It looks as though the fire has been deliberately lit, it was possibly lit on the outside before making its way into the building," Acting Inspector Darren Latham from Tasmania Police said.

"Someone has decided to do something rather silly but unfortunately those actions have caused significant damage".

Tasmania Police says while there are no firm suspects, they are following a particular line of enquiry after receiving information from members of the community.

"It's allowed us to focus our efforts a bit more towards who we think may be responsible, but we still have a bit more work to do" Acting Inspector Latham said.

Police believe there are other people with information and are urging them to come forward by calling 131 444 or Crime Stoppers on 1800 333 000.

"It may only be a small piece of information, but it might be what we need to get on top of this case," he said.

'Very sad weekend' for community

The news of the fire has devastated the tight-knit community, with hundreds of people taking to social media to express their sadness and disbelief.

"The impacts of the fire are wide-reaching, and the entire community is feeling for owners Penny and Brett," Derwent Valley Council Mayor Michelle Dracoulis said.

"The cafe means a great deal to a lot of people, there's a sense of community ownership of a space like that."

A neighbouring physiotherapy business also suffered heat and smoke damage. (Supplied: Damian Bester)

But like a lot of regional communities, Mayor Dracoulis believes locals will get behind the owners and their staff and help them get back on their feet.

"Derwent Valley has an excellent reputation for getting behind its own, there's been a lot of emotional support for Penny and Brett and staff at the Circle Cafe," she said.

"We are wrapping our arms around them and letting them know they are loved.

"It's been a very sad weekend."

The cafe has been fenced off after the fire. (ABC News: Andrew Cunningham)

Police say if it weren't for the prompt arrival and incredible efforts of the Tasmania Fire Service, the situation could've been much worse.

"Firefighters did the best they could to put out the blaze and their efforts saved a number of adjoining businesses," Mr Latham said.

"If they had of arrived a few minutes later, other businesses would've been impacted and it would have caused further devastation to the business community".

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