The bus, heading to Northbridge on Sydney's lower north shore, caught fire at around 5.23pm and burned ferociously.

Some people who were driving behind the bus stopped to get out of their cars as they watched the fire, which had flames reaching several metres into the air. Southbound lanes initially remained open, with bus passengers travelling in the opposite direction reporting they felt an intense heat even from some distance away. All lanes were then closed as emergency services responded.

The bus was well alight when firefighters arrived but all of the passengers on board were able to get off safely as thick black smoke filled the air.

Three passengers were treated for minor smoke inhalation and were taken to Royal North Shore Hospital.

Superintendent Ian Krimmer from Fire and Rescue NSW said it appeared the fire started in the engine compartment of the bus, before it spread and caused the brakes to lock up.

Six crews were dispatched to the blaze, heading from both directions, but "gridlock" traffic heading northbound and smoke obscuring southbound traffic meant the first fire truck to arrive was from Neutral Bay.

The firefighters focused on protecting the wheels of the bus when they fought the blaze, so it could be moved out of the way quickly. They managed to extinguish the fire in less than two minutes.

As traffic began moving, they remained on the scene to clean up the blackened bus before it was dragged away by a tow truck from Roads and Maritime Services.

"We certainly want to praise these crews for their response," Mr Krimmer said.

Natalie Wood from Leichhardt was driving three cars behind the bus when it caught alight. She initially saw faint grey smoke on the lower left side of the back of the bus, which then turned into black smoke and flame.

By the time she stopped her car, a man in a black ute who was ahead of her jumped out with a fire extinguisher and unsuccessfully tried to put the fire out.

"Everybody basically got out of their cars and started watching," Ms Wood said. "He was pretty brave."

Crews performing road works on the bridge also tried to use fire extinguishers, however the blaze had become too big for anyone but fire crews, and smoke began to blow over the opposite lanes.

NSW Transport minister Andrew Constance described the fire as "horrendous" and said an investigation had been launched into it immediately.

"I also send my best wishes and hopes for those who have been taken to hospital this evening as a result of this fire," Mr Constance said.

"In particular, I want to recognise this bus driver. Upon discovering the fire, he took immediate action and had in the utmost in his mind the safety of the passengers.

"I can confirm that the Office of Transport Safety Investigations will now be immediately investigating what has occurred here."

Emergency Services minister David Elliott was among commuters who were trapped on the bridge for up to 40 minutes, as others managed to turn around. He phoned radio station 2GB to advise everyone to steer clear of the area.

Traffic began slowly moving in the area around 6pm when all lanes were re-opened, however the huge backlog of cars, and expected intermittent closures on the bridge throughout Thursday night, continued to cause significant delays and commuters were advised to catch trains or ferries out of the city.

Northbound traffic heading along the Eastern Distributor was queued over the Anzac Bridge and along Victoria Road to Rozelle just before 7pm, while citybound traffic snaked back to the Lane Cove Tunnel and along Military Road to Spit Junction.

This had mostly cleared by 8pm, however the CBD remained "congested". The Transport Management Centre advised anyone heading out of the city to catch a train or a ferry instead.

Train passengers were also warned to expected larger than normal crowds at Wynyard and Town Hall stations this evening as a result of the closure of the bridge because of people seeking alternative ways to get home.

All buses heading into the city terminated for around an hour at North Sydney, Chatswood and Macquarie University before they were permitted to use the bridge again.

The bus fire has again highlighted the vulnerability of Sydney's transport network to an incident on a key arterial route.

In March, a serious head-on collision between a motorcyclist and a car on the harbour bridge brought traffic chaos to the inner city, resulting in motorists and bus passengers facing delays of up to 80 minutes.

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