Politicians and community workers in the Shantallow area said a tragedy was narrowly avoided when a car was set alight outside the Shantallow Shops.
The incident happened in the early hours of Saturday morning when a car was driven into the front wall of the shop before being burned.
A number of people live in the flats above the shops and one resident said the flames reached as high as the first floor windows.
Mrs Patsy Brennan said; “We were going to open the window to see what was going on when the flames shot up past our window, then the Fire Service came in to check how hot our windows and walls were, it was a terrifying experience.”
Local Sinn Féin councillor Tony Hassan said the residents had a lucky escape from the blaze.
“It was only sheer luck that we didn’t have a tragedy on our hands following this malicious fire. There are four residents who live in the flats above the shops and a number of them are older members of the local community.
“The flames from the burning car were inches away from their homes and the air was filled with thick smoke. It was a very frightening experience for them,” he said.
Colr. Hassan also paid tribute to the firefighters who tackled the blaze. “I would like to thank the quick actions of the Fire Service for helping prevent a very serious incident occurring here.
“There have been a number of serious incidents in the area over the past few weeks the latest being the burning of a motorbike beside an oil tank at the home of a local resident,” he said.
He also called for anyone with information on the incident to contact the PSNI.
Cathal McCauley from the Shantallow Residents Association also condemned the incident. “This was either extremely sinister in its intent, or totally stupid and irresponsible.
“It was at 5am and the residents were sleeping, there could so easily have been serious injuries or even fatalities.
“The incident shows the contempt that these people have for the local community, particularly the local shopkeepers and residents of these flats,” he said.