This is the 14th mishap involving a naval vessel in the last 10 months, including INS Sindhurakshak submarine which sank at the Mumbai harbour on August 18, last year, killing 18 personnel on board.
The fire broke out onboard Matanga, an ocean-going tug capable to towing two large vessels out of the harbour, during welding on the ship, Navy officials said.
Fire tenders were rushed to douse the flames and the extent of damage caused to the ship was being assessed, they said.
No casualty took place in the incident and a Board of Inquiry has been ordered to investigate it, the officials said.
In the recent months, there have been a spate of incidents related to the Indian Navy vessels, leading to the casualties of the naval officers.
Last month, one civilian worker was killed and two were injured in an accident at the under-construction nuclear submarine at the shipbuilding centre of Eastern Naval Command (ENC) in Visakhapatnam.
The biggest mishap had occurred when the INS Sindhurakshak sank in Mumbai harbour, killing all the 18 personnel on board on August 14.