Seven people including two children died in a fire on Saturday evening near the Philippine capital, police said.

The fire destroyed 40 houses in the densely populated Taytay municipality southeast of Manila, police said on Sunday.

Several families, who lived in one house accessible only through a long, narrow alley, were caught in the flames, they said.

The victims included a two-year-old girl and a 12-year-old boy.

"They weren't able to escape. They were trapped," Taytay's acting police chief Joel Custodio said. "They were found hugging each other."

At least one person was injured by falling debris, police added.

The fire left at least 60 families homeless, according to police.

It took around two hours to put out the fire, Custodio said, with investigators suspecting faulty wiring inside one of the houses as a possible cause. (AFP)