Homes around Tavira, in the east of the Algarve, were being evacuated from the path of the blaze, which has been burning for more than 24 hours.
"Some people began to panic. We had to help out help people who were scattered in various isolated areas which made it complicated," the mayor of Tavira, Macario Correia, told cable news channel SIC-Noticias.
More than 200 firefighters equipped with 34 vehicles and two water-dropping aircraft were combatting the fire and more reinforcements were on the way, Antonio Gualdino of the National Rescue Operation Centre told TSF radio.
SIC-Noticias showed images of local residents carrying water in plastic buckets to attempt to help the firefighters battle the wind-fuelled fire.
The fire forced local authorities to close several stretches of the Infante motorway, which runs the length of the Algarve from east to west.
The motorway was first closed on Wednesday after a truck driving along it near Tavira caught fire, SIC-Noticias reported. The driver was not hurt in the incident.
The fire in the Algarve was one of nine which broke out on Wednesday acorss Portugal, where early summer temperatures have risen to 40 degrees Centigrade (104 degrees Fahrenheit) in some places.
But by Thursday afternoon firefighters said only the blaze in the Algarve, where temperatures have been at their highest, was still burning out of control.
Portugal's department of health issued a heat warning for five central and southern areas on Wednesday under a new alert system introduced last month.
The alert level was ratcheted up in those five areas from "blue", or normal, to "yellow", which cautions that high temperatures could have adverse affects on health. There are two other higher levels in the alert system.
When the alert is raised to "yellow", hospitals are required to boost their capacity to deal with patients and increase the monitoring of the effects of heat on the population.
The system was devised to counter the effects of extreme summer temperatures which were responsible last year for the deaths of about 2,000 people.
The heat wave in 2003 was the longest and hottest in Portugal since records began in 1856 and was part of a wider spell of extreme temperatures that gripped much of Europe.
The dry heat last year sparked a rash of forest fires which destroyed more than 400,000 hectares (990,000 acres) of scrub and woodland as well as roughly 100 homes and claimed 20 lives, including those of two firefighters.
The government estimates the fires caused over one billion eurosbillion dollars) in damage.