The fire is believed to have started in the engine but quickly spread to the rest of the bus as the estimated 50 passengers quickly evacuated and watched on in horror.

Emergency services were called to the scene, 18kms north of Holbrook on the Hume Highway, about 3.15pm yesterday.

The tourist bus was travelling from Sydney to Melbourne when passengers alerted the bus driver to smoke coming from the undercarriage.

Police, NSW Fire Brigades, Rural Fire Service and ambulance officers were quickly in attendance but could do nothing to save the bus and the tourists belongings, which were all lost.

According to Albury Police a replacement bus from Illawarra was sent to pick up the stranded tourists and continue their tour.

The incident blocked both lanes of the Hume Highway for more than an hour while the fire was extinguished and the area made safe, before a single lane was reopened. No one was injured.

The fire also sparked a grass fire which was contained by the firefighters after burning through about 50 square metres.