The burning boat is described by the Maritime and Coastguard Agency as a pleasure boat 26ft in length.
Other vessels in the Aberystwyth area are being asked to stay at least a mile away as a precaution.
A spokesperson said the vessel contains flares, some of which are going off at the scene, and a gas canister.
An area of beach near the burning boat has been sealed off, West Wales Correspondent Kevin Ashford reports.
Police say they are concerned about the possibility of gas canisters on board the boat that could explode.
More: Man treated after boat fire off the Aberystwyth coast
Milford Haven Coastguard says a man is being treated for smoke inhalation after his boat caught fire near Aberystwyth this morning
A spokesperson said the boat is believed to be from the area.