The blaze engulfed the two-storey townhouse on Terrigal Street in Chadstone at approximately 9.30pm on Wednesday.
Police believe a gas cylinder exploded in the home, causing the fire.
Two primary school-aged girls and their mother were found huddled together in an upstairs master bedroom.
Firefighters pulled them from the inferno and resuscitated them before they were rushed to hospital with severe burns.
This afternoon, the two girls, aged eight and 10, remained in a stable condition in the Royal Children’s Hospital.
The 37-year-old woman remains in a critical condition at The Alfred hospital.
A 36-year-old man who lives at the property was not home at the time of the fire.
He has been interviewed by police and ruled out as a suspect, but the fire is still being treated as suspicious.
Police are not looking for anyone else in relation to the incident.
“The detectives intend to interview the female resident of the home, a 37-year-old woman, yet she remains critically injured and presently unable to communicate with police,” stated the police.
Neighbours said the moment the home went up in flames was comparable to “a massive bomb”.
“It was essentially a vast fireball, and the ensuing smoke rose for several kilometres… quite a sight,” recounted neighbor Ralph Curtis.
According to Fire Rescue Victoria (FRV), the blaze involved the bedrooms and ensuite on the second floor.
“You’re looking at temperatures of 500 degrees for the firefighters who first entered,” FRV commander Paul Eckholdt said.
The ferocity of the fire caused the roof to cave in, while the remainder of the house suffered smoke and water damage.
Firefighters have been praised for their “heroic actions” to save the occupants.
Anyone who witnessed the fire or has any vision is urged to contact Crime Stoppers. 
