More than 40 firefighters spent almost 12 hours tackling the blaze in a shop on the area’s High Street.
The shop, which was closed but due to open for business as an ice-cream parlour according to residents, was badly damaged.
It is in between Chan’s Optometrist and Solent Funeral Services. The roof of the three-storey building was also damaged.
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A spokesman for Hampshire Fire and Rescue Service said: ‘We were called at 1.20am in the morning to reports of a fire.
‘Multiple crews from across the county attended the incident.
‘The roof of the three-storey building has been destroyed – it’s a shop with flats above it.
‘Firefighters used four sets of breathing apparatus, five jets, two hose reel jets and an aerial ladder platform.
‘We had relief crews going back and forth to the scene and fire investigation officers were present.’
The cause of the fire is not yet known. Police also attended.
Crews from Gosport, Fareham, Portchester, Southsea and Botley worked to put the fire out.
Ben Watts, director of Solent Mobility Centre – opposite the affected shop, said: ‘I got to work at about 9am, I saw the fire on the news at 7am.
‘The street’s been busier this morning than it ever usually is.
‘The damage is pretty bad, I didn’t expect to see the offices at the back of the shop damaged as well.
‘It was supposed to be an ice-cream parlour and it was due to open in the next few months.
‘The windows had paint on them but the inside was all done up and ready-to-go.’
The incident closed the High Street to vehicles, but pedestrians were still able to pass through.
Lee-on-the-Solent resident Jim Lyness, 65, visited the scene of the incident.
He said: ‘The building was mega done up, top-to-bottom, inside-and-out.
‘I mean I’m shocked at how bad the damage is, it’s gone right the way through.
‘You don’t expect to see something like this in sleepy old Lee-on-the-Solent.
‘I wonder how a property with brand new services has caught fire right the way throughout.’
See our picture gallery of the incident here.