A regional New South Wales suburb was woken on Wednesday morning by the sounds of explosions, after a stolen car was set alight.

Residents in Marie Street, South Tamworth, saw flames from their backyards, shooting above their fences.

WATCH THE VIDEO ABOVE: Car fire metres from homes leaves residents rattled

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“It was very red, I thought there was flood lights out back because it was so bright,” a resident said.

Firefighters were called to the laneway at about 5.30am to the car fire as families watched the blue LDV vehicle burn.

They described the loud bangs as the car melted.

“We heard that over and felt that across the road, it was pretty scary,” another resident said.

One neighbour reached for a garden hose to stop the flames from spreading to a shed and home only metres away, telling 7NEWS the blaze was so intense steam was coming off the roof.

The fire was close to homes. Credit: 7NEWS

Debris from the burning car also flew over the fence and into backyards.

“Right up in the air and into our yard, it just missed the missus,” a resident said.

They praised the quick response from fire crews for preventing the blaze from spreading.

The car was destroyed in the fire, with neighbouring fences melting under the heat.

Police later established a crime scene and say their inquires established the vehicle was stolen from an address on Susan Street, Kootingal, sometime between 3.30am and 4am today.

Investigations into the incident are continuing, and anyone with information or dashcam or CCTV footage is urged to contact Crime Stoppers.