The fire brigade was called to the London NYC hotel after a female guest’s hair went up in flames.
The woman, who was frolicking in a bath at the party, accidentally leaned back over a candle and flames burst out of her hair.
The moment was caught on video as the US rapper was posting the event live online via Ustream to promote his new album Last Train To Paris.
Diddy later told partygoers: 'The Fire Department just left upstairs. It's crazy, but everything is under control.'
According to sources, Diddy told hotel managers that he'd invited 20 people to his hotel penthouse for a small soirée to celebrate the launch of his new album – but at least 200 guests turned up, including Usher, Fabolous, Chris Brown, Trey Songz, Miss USA Rima Fakih and Swizz Beatz.
The sources added that he is no longer welcome back at the hotel.
Asked to comment on the incident, Diddy's spokesperson said: 'He invited a few friends to a listening session, which was Ustreamed live for his fans worldwide.'
The hotel declined to comment.