Aerial footage from broadcasters showed houses reduced to rubble and thick plumes of smoke rising from the hilly Saganoseki district of Oita city, which overlooks a fishing harbour renowned for its premium Seki-brand mackerel.
The flames had also spread to nearby forested slopes and an uninhabited island more than one kilometre off the coast, likely due to strong winds, local media reported.
The blaze started on Tuesday night and has burned 48,900 square metres, forcing 175 residents in the district, some 770km southwest of Tokyo, to flee to an emergency shelter, Japan's Fire and Disaster Management Agency said.
The cause of the fire is being investigated.
One person has been found dead, local media reported citing police sources, while a woman in her 50s was reported to be hospitalised for mild burns.
"I extend my heartfelt condolences to all residents who are evacuating in the cold," Japanese Prime Minister Sanae Takaichi said in a post on X.
"The government will provide the maximum possible support in collaboration with local authorities," she wrote.
The fire has caused power outages at around 300 houses in the district, according to Kyushu Electric Power.
The number of buildings and size of the area engulfed in flames make it the largest urban fire in Japan since a 1976 blaze in Sakata, excluding incidents caused by earthquakes.
In 2016, a fire in Itoigawa burned 147 buildings and about 40,000 sq m. No one was killed.
