The 27-year-old was trapped inside a three-storey townhouse at Dover Street in Truganina in Melbourne's west as it went up in flames about 2.30am on Thursday.
The Hoppers Crossing woman called emergency services to raise the alarm, however she did not survive.
Her death is being treated as a homicide after two people were seen getting out of a car and pouring accelerant inside the house before it was engulfed in flames, Victoria Police Detective Inspector Chris Murray said.
"This individual is completely innocent and should not have died," he told reporters on Thursday.
"We have no history on this individual, nor the family.
"My early call is these offenders have targeted the wrong address, which is nothing short of tragedy."
Det Insp Murray described the woman as "the kind of girl who doesn't leave home very much".
"She's been subjected to the most appalling, despicable act one could imagine," he said.
Detective Inspector Chris Murray believes the offenders have targeted the wrong address. (Diego Fedele/AAP PHOTOS)
Resident Sahil Arora lives next door to the destroyed townhouse and woke up to the sound of shattering glass.
He and his wife quickly evacuated their home and watched their neighbour's house go up in flames as their street filled with heat and smoke.
Mr Arora didn't know the woman who was house sitting but had seen the couple who live next door many times, noting of their golden retriever often sat in a window.
"I was deeply saddened and sincerely hoped that no one was inside," he told AAP.
"I was also worried about the safety of the adorable golden retriever."
He said he now feels "a bit scared" and warned this type of tragedy can happen to anyone.
"Please ensure you have evacuation plans in place and verify that your fire alarms are functioning correctly, be strong and help each other any way we can."
Police have no more information about the two people seen pouring accelerant inside the house. (Diego Fedele/AAP PHOTOS)
The dog is unaccounted for and Det Insp Murray did not expect the pet had survived the blaze.
"Whether they meant to damage these premises or just cause a scare tactic, now they are staring at a charge of homicide, of murder," he said.
"One innocent young lady has lost her life, which is nothing short of a tragedy."
Police believe the two people who fled were male but do not have any other information about them, including whether they were injured in the attack.
"If they've gone to a hospital or doctors, if someone's seen someone come home who has had a burn, that's something we'd like to hear about again," the detective added.
Police patrols of the area will be increased, however there is no safety alert to the wider community.
Police will increase patrols of the area but there is no safety alert to the wider community. (Con Chronis/AAP PHOTOS)
The arson and explosives detective hit out with criminals' fascination with fire as a way to take revenge or to settle disputes, particularly with attacks linked to the illegal tobacco war between criminal groups.
He ruled out any links between the Truganina fire and ongoing criminal war but said money is often a factor behind the attacks.
"I know the type of individuals that do these (acts), they do it for a few hundred dollars thinking they're going to burn something down," he said.
"This was just a matter of time, that is, they're using arson as a means of their criminality".
Investigators are combing the area for CCTV and anyone with other footage has been urged to come forward immediately.
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