The flames sent off huge plumes of black smoke and showered the ground with embers as police held back crowds of onlookers.
Li Jian, an onlooker, said he saw smoke rise from the hotel's roof shortly after a huge burst of fireworks showered it with sparks, although it was not clear if the sparks started the fire.
"Smoke came out for a little while, but then it just started burning."
|The gutted hotel tower is part of Beijing's landmark CCTV complex [AFP]
There are usually tight restrictions on the use of fireworks in downtown Beijing, but the rules are waived each year during the Chinese New Year holidays.
Xinhua quoted Luo Yuan, a spokesman for the Beijing fire department, as saying that CCTV had hired a fireworks company to ignite several hundred large fireworks in an open area close to the hotel building.
He told a news conference that the people from a company in Hunan province hired to set off the fireworks were being questioned.
He said the fireworks were similar to those used during the Beijing Olympics last year, but approval was needed from the city government before they could be set off in downtown areas.
Erik Amir, a senior architect at the firm behind the complex, the Office for Metropolitan Architecture, said the fire had destroyed years of hard work.
"I think it's really sad that this building is destroyed before it can be opened to the public."