NSW lakeside restaurant up in flames

A restaurant and function centre overlooking Lake Macquarie in the NSW Hunter region has been destroyed in a large blaze overnight with 20 motel guests being evacuated.

Ten fire crews raced to the Squid's Ink Motel in Belmont at 1.20am on Monday to find the top floor of the hotel well alight with crews working for an hour to extinguish the blaze, a Fire & Rescue spokesman told AAP.

No one was injured, said police, who are appealing for witnesses to the blaze which has caused an estimated $2 million in damage.