Boaties using the water near Kinloch Beach, Taupō, are urged to take care after a vessel caught fire and sank this afternoon.

About 2.50pm, Police were notified of a boat on fire, some 300m from the shore.

"Everyone on the boat is safe and well, thanks to several other nearby boaties who came to their aid," says a police spokesperson.

"The response was a collaboration between FENZ, the Coastguard, Harbourmaster, Ambulance and Police.

"The boat has since sunk in about 4 metres of water and may pose a hazard to other water uses.

"Boaties in the area should watch for debris and follow instructions of the Harbormaster."