Police said nobody was injured in the incident.
A fire services officer said they received a call about the fire at 12.35 AM.
"Twenty-one fire tenders were rushed to the spot to douse the fire and it was controlled by 6.15 AM," he said.
The cause of the firehasn't been ascertained yet, he said.
"The area is inhabited by junk dealers and there were things like plastic, bottles, cardboard kept there. Fire started in the junk matter and quickly spread across the jhuggis," said a senior police officer.
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"The Deputy Chief Minister has directed Revenue Department to give compensation which will soon be ascertained," said a senior Delhi Government official.
The official said the department will propose the amount of compensation that will be cleared by the higher authorities.
A case under relevant section has been registered and further investigation is underway, police said.