Ten people were inside a home at Heckenberg, in Sydney's southwest, when the fire broke out shortly after midnight on Wednesday.
Most had already escaped by the time firefighters arrived, but the bodies of a 46-year-old woman and a six-year-old girl were recovered from inside the property.
They are yet to be formally identified.
Eight other people – including four children – escaped the blaze, although one girl and a man are fighting for their lives in hospital.
Fire and Rescue NSW Superintendent Adam Dewberry said authorities were at the fire within minutes of receiving an emergency call, but the scale of the blaze meant their best efforts could not save the duo.
"(It's an) absolute tragedy, devastating news for the community … we were here within a couple of minutes (but) there's nothing they could do," he told Sydney radio 2GB.
"This home is completely gutted, it's absolutely been destroyed, fire has ripped through the home and it's actually just a shell of itself."
Neighbours reported hearing screaming from multiple people at the home before some escaped into the backyard.
One girl was taken to Westmead Children's Hospital and remains in a critical condition, while a man was taken to Concord Hospital, also in a critical condition.
A second child and a second man were taken to Liverpool Hospital.
Four trucks raced to the scene and 16 firefighters took an hour and a half to extinguish the blaze.
Police have established a crime scene and will prepare a report for the coroner.
Supt Dewberry said investigators were yet to determine if the house had a working smoke alarm.
The deadly blaze follows a fatal fire at Guildford, in Sydney's west, on Tuesday.
That fire was believed to be caused by an e-bike battery, while no working smoke alarm was found in the property.
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