The authorities rushed to evacuate people from their homes in the area along the road to the airport, where rival militias have been fighting each other for the past two weeks.
The depot, about 10 kilometres (six miles) from the Libyan capital, caught fire on Sunday when it was hit by rockets fired by the combatants, who are jostling for control of the airport.
Containing six million litres of fuel, the plant was burning steadily and the authorities feared the blaze could spread to a natural gas reservoir in the same plant, run by state-owned National Oil Corp, where 90 million litres are stored.
"There is a risk of a massive explosion which could cause damage over a radius of three to five kilometres," spokesman Mohamed al-Hrari said.
"Firefighters have been trying for hours to put out the blaze but to no avail. Their water reserves finally ran out and they've had to leave."
He said the only option left was "intervention by air", as the government said several countries had offered to send fire-fighting aircraft in response to an appeal for international aid.
Fighting in the area has claimed the lives of 97 people and left more than 400 injured, according to the latest figures released by the health ministry.
On Monday, the first day of the Muslim Eid al-Fitr holiday to mark the end of the Muslim fasting month of Ramadan, a huge pall of black smoke hung over the plant and explosions could be heard at regular intervals.
An AFP photographer said projectiles had fallen close to the plant.
While the oil burns, in Tripoli itself motorists are suffering a severe petrol shortage, as service stations have closed over fears for the safety of staff in the light of the fighting.
As the lawlessness spreads, several countries, including Britain, France, Germany and Egypt have all warned their citizens not to travel to Libya, while the United States evacuated its embassy over the weekend.
Other countries, among them the Netherlands, Belgium, Spain and Tuurkey have advised their nationals to leave the country immediately.
Italy and Malta have sent aircraft in the past few days to the Miitiga military airport to airlift their nationsls out of Libya.
The exodus of foreign workers will further hit the strife-torn country, while the health ministry warned of a shortage of medical staff after the Philippines announced it was withdrawing its citizens, including 3,000 doctors and other healthcare workers.
Armed assault on airport
The Tripoli clashes, the most violent since a 2011 armed revolt which overthrew longtime dictator Moamer Kadhafi, started with a July 13 assault on the airport by armed groups, mainly Islamists.
The attackers are battling to flush out fellow former rebels from the hill town of Zintan, southwest of Tripoli, who have controlled the airport for the past three years.
Washington evacuated its embassy staff on Saturday, with Secretary of State John Kerry warning the mission had faced a "real risk" from the fighting.
The spiralling violence which has also hit the eastern city of Benghazi, birthplace of the 2011 revolution, where fighting over the weekend between army special forces and Islamists killed 28 people, mostly soldiers, officials said.
The fighting erupted on Saturday when Islamist groups launched an assault on the headquarters of a special forces unit near the city centre.
Near-daily clashes take place in Benghazi, parts of which have become strongholds for Islamist groups since the fall of Kadhafi.
Libya, meanwhile, on Monday denied claims from Cairo that Egyptian nationals were among those killed in a rocket attack on a house in Tripoli at the weekend.
Egypt's foreign ministry had said a rocket hit a house in the capital on Saturday, killing 23 people, including several Egyptians.
But Libyan interior ministry spokesman Rami Kaal dismissed the claim. "News reported in the press about this incident is completely wrong," he said.
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