Large plumes of black smoke could be seen from the shore where the boat went up in flames off Chelsea Beach, in Melbourne’s south-east, just before midday.
One person was on board the 12-metre vessel when it caught fire, police said.
He was brought to shore by a nearby boat and checked over by paramedics.
Fire Rescue Victoria’s marine unit rushed to the scene, where they were seen battling the flames from the water.
The blaze completely destroyed the boat and it sank around 12.30pm.
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