The fire took hold on a small pallet carrying the chemical Zinc Chloride inside the factory, with the small blaze causing a chemical reaction which emitted a gas.

As a result, a 200-metre exclusion zone was set up around the factory, on the corner of Berthong and Wills streets, with six homes in the area evacuated.

Roadblocks were set up around the building on Berthong Street, Wills Street, Hume Street and Pinkerton Road as police cordoned off the area surrounding the fire.

Firefighters from Fire and Rescue NSW, along with Hazmat teams tackled the blaze were on Tuesday night working to isolate the burning zinc chloride.

"The crew's been inside in fully encapsulated suits and using a forklift, we've moved the pallets that were not touched," Cootamundra fire captain Les Carr said at about 7pm on Tuesday.

"We've left one pallet, the trouble pallet in situ, and we will be placing it in a 200-litre Hazmat bin."

The fire, which took hold at about 4.45pm, burned well into the evening as emergency services co-ordinated to defuse the situation.

5.40pm: POLICE are cordoning off a number of roads around the site of the fire.

Roadblocks have been set up around the building on Berthong Street, Wills Street, Hume Street and Pinkerton Road.

The fire is not yet under control and firefighters are still endeavouring to identify the chemical burning within the Berthong Street building.

5.25pm: SIX homes have been evacuated around a fertiliser factory in Cootamundra following a fire inside the building.

Police have set up a 200-metre exclusion zone around the factory on the corner of Berthong and Wills streets.

A potentially hazardous chemical is understood to be burning inside the factory.

There are no visible signs of smoke coming from the factory with firefighters currently working to identify the chemical involved.