A 21-year-old man accused of injuring 26 people when he set himself on fire with petrol in a bank in Australia has been identified as a Burmese asylum seeker who had been waiting for three years to be accepted as a refugee.

The suspect, known by his friends as Noor, and five bystanders were taken to hospital with serious burns following the incident at the Commonwealth Bank of Australia branch in the Melbourne suburb of Springvale yesterday morning, officials said.

Another 21 people casualties ranging from children to people in their 80s were taken to hospital with breathing problems.

Noor, who remained under police guard today, arrived in Australia by boat as a lone teenager in 2013 and had been waiting to be granted a refugee visa ever since, said Pamela Curr, who recently retired from the non-government Asylum Seeker Resource Centre outside Melbourne.

Ms Curr did not know why Noor had allegedly decided to set himself alight. But she said the Immigration Department was threatening to make thousands of asylum seekers financially desperate by cutting their benefits if their refugee claims were rejected.

"The department is going to starve thousands of people out of the country, or so they think," she said.

A member of Burma's minority-Muslim Rohingya community in Melbourne, Habib Habib, said Noor speaks Rohingya, although he might not himself identify as Rohingya.

Noor had been struggling financially to help support his family in Burma with the government benefits he is paid every two weeks, Mr Habib said. Asylum seekers are not legally allowed to work.

Mr Habib had been told that Noor's latest benefit had not been deposited into his bank account when it was due on Wednesday and that Noor had returned to the bank each day in the hope of making a withdrawal.

Noor's friends had become concerned by the state of his mental health as years passed without his refugee claim being resolved.

"This system makes all of them crazy. They're in legal limbo," Mr Habib said.

Police have yet to announce a motive for the fire, which was quickly extinguished.

Closed-circuit television footage showed Noor walking towards the bank carrying a plastic bottle of fuel that he had bought from a nearby petrol station moments before the blaze.

Acting Prime Minister Barnaby Joyce declined to comment on Noor's refugee claim.

"You'd have to lose your mind to do something so cruel," he told reporters.

Noor arrived in Australia shortly before July 19 2013, when the government introduced a hardline policy banning refugees who arrive by boat after that date from ever making Australia home. Since then, asylum seekers have been sent to Australia-run camps on the Pacific island nations of Papua New Guinea and Nauru.

Two refugees on Nauru set themselves alight within a week early this year. The first was a 23-year-old Iranian man who died. A 21-year-old Somali woman survived after hospital treatment in Australia.

Noor was initially detained in an immigration camp on the Australian territory of Christmas Island in the Indian Ocean before he was relocated to Melbourne on a bridging visa while awaiting the outcome of his refugee application, Ms Curr said.

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