A manhunt is underway for a masked arsonist after a family home was set alight, leaving an 88-year-old woman trapped on the balcony.

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

An elderly woman was among four people on the property — the woman’s son, 65, his wife, 53, and a 44-year-old male renter — who all escaped.

Officers and a quick-thinking civilian used a ladder to rescue the 88-year-old who became trapped on the balcony, with fire blocking off the stairway.

NSW Police Superintendent Christine McDonald said police and the heroic civilian saved the woman’s life.

The 49-year-old man was able to grab a ladder which a rookie police officer climbed to reach the victim as the building burned intensely.

“He’s only been a police officer for two months and he scaled a ladder whilst the house was completely alight to rescue that 88-year-old woman, with the help of the 49-year old civilian,” McDonald said.

“The 88-year-old woman would not be alive if it wasn’t for the brave efforts of the 49-year old male and the police officers that were here.”

NSW Police believe the fire was suspicious, although 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.

-with AAP