Hundreds of firefighters tried to quell the blaze, which broke out at around 3am local time (2030 GMT), but were unable to stop the flames from consuming the lakeside Kandawgyi Palace Hotel.
An AFP reporter at the scene saw a white plastic sheet covering a body retrieved from the fire. The victim was later identified as a middle-aged Japanese man.
“(He) was a businessman in his 50s,” Tomoko Yoshihiro from the Japanese Embassy in Yangon told AFP.
Htay Lwin from Htoo Group, which owns the hotel, said authorities were probing what sparked the inferno.
“It’s hard to say why the fire broke out, the cause is under investigation,” he said, adding around 140 guests were at the hotel when the flames erupted.
The colonial-era structure is owned by a Myanmar businessman notorious for making his fortune under the former junta.
Tay Za, a controversial tycoon who spun millions of dollars through his close military links, founded the Htoo Group, which spans construction, timber, resorts and an airline.
Locals lamented the loss of one of Yangon’s iconic buildings, which was perched on a hill by a large picturesque lake in the centre of the city.
“We’re sad that such a historic and beautiful place was completely destroyed,” a witness Kyi Kyi told AFP, standing near the still smouldering ruins of the building.
The oldest parts of the Kandawgyi hotel date to the 1930s when British army officers used the site as rowing club.
Guests at the hotel had been moved to other hotels in Yangon, Myanmar’s former capital.
The bustling city has made its mark on Southeast Asia’s tourist trail since the country emerged from full junta rule in 2011.
Yet Myanmar’s status as one of the region’s hottest new destinations has been battered recently by global censure over an army crackdown on the Muslim Rohingya minority.