The incident left 20 people injured.
It's believed the original blaze broke out at the Loafers' Lodge in Newtown soon after midnight local time (10pm AEST), reports 9 News.
"It is a truly tragic situation, the worst outcome," Wellington Mayor Tory Whanau said.
Police have not commented on the fire publicly.
"There's a risk of the roof caving in and, of course, we need to make sure that our firefighters are protected as well," Whanau said.
According to Stuff, a number of people still remain unaccounted for.
There were about 94 people in the hostel at the time of the fire, the property manager told Stuff.