Following the blaze, which broke out on Tuesday at 4 p.m., huge plumes of thick, black smoke can be seen from every part of the city.
Tourists saw the fire spread horrified from their balconies.
According to Spanish media, the fires tore through many plots in the Armanello neighbourhood close to the Pueblo de Benidorm market.
It started in an open area close to some nightclubs littered with abandoned mattresses and other rubbish.
No injuries have been reported so far.
The Provincial Fire Consortium of Alicante said the fire is still active but contained.
Water-carrying planes and helicopters were scrambled in addition to more than a dozen fire crews.