A government spokesman said a rare geological occurrence was reported from a hill slope near Kimin village, about 75 km north of state capital Itanagar.
"Residents first witnessed a fire in the hill and afterwards it began spewing ash and sending debris down its slopes that appears like typical molten magma of a volcano," Bidol Tayeng, district magistrate of Papum Pare, told IANS.
The phenomenon was first reported Aug 21 from the area where there was no human habitation. The nearest human settlement is located about a kilometre from the hill slope.
"The debris found in the area was of different colours like black, green and brown. Some of the substances also appear like glass, besides burnt bricks and rocks," the magistrate said.
"Such was the intensity of the heat from the flying debris that a high tension power pole near the site of the occurrence melted, resulting in power disruption."
Residents in the area are panicking, with authorities sealing the area by deploying police and preventing people from going near the hill.
"The site is lying dormant but not extinct, as the area continues to emit smoke and gas and also the nearby earth was found to be very hot," said N. Nyori, a local administrator in Kimin.
Experts from the Geological Survey of India (GSI) have visited the area and collected samples for laboratory tests at their headquarters in Kolkata.
"This is some sort of a fumerolic activity which could be the beginning of some activity inside the earth. The molten magma has probably oozed out owing to rise in temperature of at least 1,000 degrees centigrade," a GSI scientist said requesting not to be named.
The laboratory test report is expected by the weekend.
India's northeastern region is considered by seismologists to be the sixth most quake prone belt in the world with Arunachal Pradesh - bordering China and Myanmar - listed in the seismic zone V category.
"Evidence of volcanic eruptions some millions of years back has been found in a village named Lichi, about 15 km from the present eruption site. However, there are no historical remains of any volcanic mountain - either extinct, dormant or active in the region," the scientist said.
GSI experts are camping in the area to observe the rare occurrence and have asked authorities not to allow locals to go near the site.
"There has been no fresh oozing since Aug 21 although more such occurrences cannot be ruled out," the scientist said.