Several vehicles are ablaze and eyewitnesses said flames are leaping 50ft into the air.
Thick plumes of black smoke can be seen for miles around.
Residents who live near the to huge blaze have been evacuated as a precaution.
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Fire chiefs said fuel from vehicles in the scrapyard were posing problems to the crews as they try to battle the massive blaze.
A spokesman for Oxfordshire Fire and Rescue Service said: "Eight Oxfordshire Fire and Rescue appliances are currently attending a fire with fuel involved at T&B Motors West End, Witney.
“Both Witney appliances as well as pumps from Burford, Eynsham, Chipping Norton and the water carrier from Wheatley have been called in.
"Because of the nature of the premises, fuel is involved and there is a large plume of dark smoke.”
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West Oxfordshire District Council said: “Like many of you, we can see the black smoke over Witney.
"Please be assured that OxonFireRescue are aware of this fire and are dealing with the situation.”
Thames Valley Police issued a warning to people in the area, urging residents to close windows and ensure pets were kept indoors.
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A spokesman said: “Thames Valley Police is currently assisting Oxfordshire Fire and Rescue with an incident in Witney.
“Several vehicles are on fire.
“West End is completely closed to traffic as is the bottom end of Wood Green and the junction of West End and Hailey Road.
“Please stay clear. If you live in the line of smoke please shut all windows and doors and keep your pets inside.”