Police believe a person or group of people smashed a window in a bottom rear unit in Sydney Street just after 3am on Monday and used an accelerant to set the premise alight.
The block of flats is currently undergoing refurbishment, and cans of paint, thinners and other flammable materials were inside, police said.
Initial investigations indicate the blaze caused the materials to ignite, resulting in an explosion that caused some windows to be damaged, they said.
No one was injured in the explosion. The arson squad is investigating the incident. Police are appealing for anyone who may have been around the area at the time of the incident to come forward.
Anyone with information can contact Crime Stoppers on 1800 333 000.
