Fire Rescue Victoria crews were called to the shop on Victoria Street at Richmond, in inner Melbourne, at 4.15am on Monday.
The shop was ram-raided by unknown offenders who then set the building alight and fled, police said.
Fire crews arrived to find the shop, on the edge of Melbourne's city centre, fully alight before 80 firefighters and 25 firefighting trucks got the blaze under control by 6am.
No one was injured in the fires, a Fire Rescue Victoria spokesperson said
A crime scene was set up at the scene on Monday, closing part of Victoria St to both cars and trams for several hours.
The attack, the latest in more than 150 tobacco store fires in Victoria since March 2023, is linked to criminal syndicates competing in the illegal tobacco market, according to police.
Griffith University criminologist Dominique De Andrade said it was likely such attacks would continue "to occur and impact local communities" in Melbourne.
"There is no quick fix," Dr De Andrade said.
"Illicit tobacco now makes up more than half of Australia's tobacco market and can be found in most communities across Australia. It's a complex issue to tackle."
Police were struggling to get on top of the issue because they were "dealing with organised crime networks that are making huge profits from illicit tobacco and will likely adapt to policing efforts", she said.
"Illicit tobacco is five to 10 times cheaper than legal tobacco. The availability now in local communities and cheap prices will continue to drive demand."
The Gang Crime Squad, formerly Taskforce Lunar, has executed more than 350 raids and made at least 212 arrests for offending connected to crime groups involved in the illegal tobacco trade.
More than $50 million worth of cash, illegal cigarettes, tobacco and vapes has also been seized from tobacco retailers.
Victoria Police did not respond to a request for comment on Monday's attack.
The fire follows another tobacco store targeted by arsonists in nearby Bridge Road on July 1.
Demand for illegal tobacco has exploded due to tax hikes on legal products pushing up the price of cigarettes to near $50 a pack and prompting a rise in black market activity.
Tobacco retailers were unregulated in Victoria until enforcement began on a licensing scheme in February.
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