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The blaze was reported at 17.30 in the Atrium Palace on the central Gran Vía, although the cause is not yet known.
It is thought to have started in the sauna, which is in the basement of the hotel and difficult for firefighters to access.
Several guests were in the sauna area at the time and had to grab their clothes and leave immediately.
The block next door and the school behind the hotel were empty, but will need to be inspected to ensure they are structurally sound – although at first glance, it appears they have not been affected.
Only one person was hurt – a young woman who sustained a minor burn to her hand, but did not need medical attention other than first aid on site.
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