The fire at the Al-Shajara oil and gas facility near Yarmouk broke out overnight Wednesday to Thursday, witnesses said.
It was not immediately clear what started the fire, but residents said they heard a loud explosion at the facility, around which fierce fighting has been underway for the past couple of days.
Plumes of smoke still rose from the site on Thursday morning and could be seen from as far as 10 kilometers away.
Thursday's battles came after the powerful paramilitary Rapid Support Forces (RSF) announced in a Wednesday statement they had wrestled "full control" of the Yarmouk weapons manufacturing and arms depot complex.
The RSF claimed that opposing Sudan army soldiers had fled the site, leaving behind large quantities of military equipment and vehicles.
The paramilitaries also posted videos online purportedly showing their fighters inside the facility, celebrating. Weapons, including machine guns, and large quantities of ammunition could be seen in the background.
Since fighting broke out in Sudan on April 15, more than 1,800 people have been killed, according to the Armed Conflict Location and Event Data Project.
Nearly two million people have been displaced by the conflict, according to the latest U.N. figures, including 476,000 who have sought refuge in neighboring countries.
Talks mediated by Saudi Arabia and the United States broke down, and multiple ceasefires have failed to take hold.
U.S. Secretary of State Antony Blinken is presently in Saudi Arabia, where the Sudan cease-fire has been on the discussion agenda.
Last week, Washington slapped sanctions on the warring generals accusing both sides for the "appalling bloodshed" after the latest truce collapsed and the army pulled out of ceasefire talks altogether.
The Yarmouk weapons plant has a past. In October 2012, Sudan accused Israel of being behind a blast at the Yarmouk facility, leading to speculation that Iranian weapons were stored or manufactured there.
Israel at that time refused to comment on Sudan's accusation.