The houses were burned down when fire broke out in the early hours at Dukezong, meaning "the town of moon" in Tibetan and built 1,300 years ago on the South Silk Road.
The fire lasted over 10 hours.
Over 1,000 people were mobilised to put off the fire but their task became more difficult due to wooden houses, state- run Xinhua quoted local government spokesman as saying.
No casualties were reported and the cause of the fire is being investigated, the report said.