The fire began on the roof of the opulent townhouse after midnight, before moving quickly throughout the building and caused "irreversible" damage to the landmark according to France's Minister for Culture, Aurelie Filipetti.
Murals, frescoes and paintings dating back hundreds of years were completely destroyed.
Among the works damaged were frescoes by celebrated French painter, Charles Le Brun.
Speaking after visiting the scene Filippetti said the fire had "caused very serious damage to an essential part of Paris's heritage, some of which is irreversible".
Filippetti said the Qatari royal family had already been in touch with the government and city of Paris to promise to do "everything possible to restore this magnificent part of Paris's heritage".
The minister said the "Cabinet des Bains" - a series of murals and frescoes painted by Eustache Le Sueur -- had also been completely destroyed.
She said the cause of the fire had not yet been determined and that police were investigating.
Fire service lieutenant colonel Pascal le Testu told French daily Le Parisien on Wednesday morning how the fire had spread quite quickly "because the building is empty and in the middle of renovations."
“Intervening is complicated because the structure has become quite fragile,” he added.
"Now we have to see how badly the structures were affected as well as the state of the artworks inside that may have been reached by smoke and flames, but also water, despite our utmost efforts to protect them," he added.
Around a dozen neighbours were evacuated, while one firefighter was slightly injured.
Some 172 firefighters and 51 fire trucks battled the blaze for six hours into Wednesday morning, which at one point threatened to spread to neighbouring buildings, according to Le Parisien.
Now the fire has raised concerns that historic parts of the building have been destroyed anyway.
"It really is a catastrophe because we fought for the frescos of the Gallery of Hercules to be preserved in the renovation project and now everything has gone up in smoke or been drowned," said neighbour Sophie Pons.
Fire-fighters battle to control the fire on the roof of the 17th century
Hôtel Lambert on Île Saint-Louis in Paris. Photo: Tribouillard/AFP
The Hôtel Lambert, an urban mansion built in the 1640s and situated on Île Saint-Louis on the Seine river in Paris, has been home to many of the elite of French society in the last three centuries.
It was designed for a wealthy financier, Nicolas Lambert, by the architect Louis Vau, who went on to oversee an expansion of the Château de Versailles for Louis XIV.
Rich with history, the mansion's uses over the years have included being a hideaway for the 18th-century philosopher Voltaire and his lover, and a political headquarters for Polish exiles in the following century.
The 2007 acquisition of the mansion by Prince Abdullah Bin Abdullah Al-Thani, brother of Qatar's emir, from the Rothschild banking family for some
€60 million ($85 million) sparked a dispute as heritage activists feared he would destroy a cultural gem.
The Hôtel Lambert in better health, in 2010. Photo: Tangopaso/Wikimedia
Plans for large-scale renovations, including the installation of a parking area and vehicle lift, were initially blocked by a French court following complaints from activists and neighbours.
Qatar's royal family took over the building in 2007 from the Rothschild banking dynasty for some 60 million euros ($85 million).
Supporters of the Qatari family's plans said the mansion had been neglected and damaged over the centuries and was in desperate need of repairs.
Some also suggested the criticism was rooted in opposition to seeing foreigners buy exclusive properties in rarefied central Paris.
The dispute was finally resolved in January 2010 when the prince signed an agreement with the heritage association Historic Paris after weeks of delicate government-supervised negotiations.
Under the agreement, the association withdrew legal proceedings against the prince, described by the ministry as "a great friend of France" who cares for its heritage.
Qatar's royal family has become a major investor in France, buying up prestige properties, investing in flagship companies such as energy giant Total and media group Vivendi, and purchasing football club Paris Saint-Germain.
The French foreign ministry estimates that Qatar has invested at leas t€12 billion ($15 billion) in France over the last five years.