The inferno gutted the upper part of the 79-storey Torch tower, triggering an evacuation of nearby blocks in the Dubai Marina neighbourhood, an AFP correspondent reported.
Amateur footage posted online showed fire engulfing the upper floors of the tower -- home to hundreds of expatriates -- with debris falling onto the road as strong winds fanned the flames.
Resident Mehdi Ansari told AFP that the fire alarm sounded at around 2 am (2200 GMT).
"I saw there was fire and pieces of the building falling down so I immediately took my wife and our baby. We took some important items and went down," he said.
"When we went to the staircase, it was full of smoke. Later the staircase got busier and smokier, the lights went off and some people panicked."
Civil defence teams cleared the building, which at 336 metres (1,105 feet) is one of the world's tallest residential towers.
Dubai police said there were no fatalities but seven people were treated at the scene for smoke inhalation.
A civil defence department statement said the fire began on the 51st floor and swept across the tower's facade affecting 20 storeys.
Major General Rashid Thani al-Matroushi, director of Dubai civil defence, said firefighters were able to stop the fire spreading to nearby buildings.
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Emergency teams used "strict protocols to break in quickly and reach the source of the fire," he was quoted as saying by Abu Dhabi-based newspaper The National.
Firefighters battled the blaze for more than two hours, before hundreds of residents of nearby towers were allowed to return to their apartments.
'OUT OF CONTROL'
Ansari, who lives on the tower's 27th floor, praised the emergency services for dealing with the blaze.
"It was a big fire and the wind was making things worse. The fire was out of control," said the 30-year-old sound engineer.
"Some people had to walk down about 50 floors and weren't in great shape," he added. "The firefighters were outstanding. They got there very fast and medics took care of everyone."
Dubai Marina is a popular expat neighbourhood that has a high concentration of residential towers. It is also a major tourist attraction.
Dubai, known for its skyline of hugely varied skyscrapers, has seen fires at towers in the past.
In 2012, a huge blaze gutted the 34-storey Tamweel Tower in the nearby Jumeirah Lake Towers district. It was later revealed to have been caused by a cigarette butt thrown into a bin.
Also on Saturday, local media reported that 10 foreign labourers had perished in a fire that destroyed a makeshift hostel above a tyre shop.
Eight others were injured in the blaze that gutted the two-storey building in the Mussaffah district on Friday, Gulf News daily reported, saying that the unlicensed accommodation above the shop was originally a storage area.