The rapper was celebrating the release of his latest album Last Train To Paris at The London Hotel in New York earlier this week, TMZ reports.
Ustream was in attendance at the party, and footage shows a number of people, including comedian Kevin Hart, sitting in and around a bathtub surrounded by candles.
An unnamed model, who is in the bath, then suddenly realises her hair is on fire and panics, before dunking herself under the water, as Hart shouts: "Did the camera catch that? Did the camera catch that?"
Firefighters were reportedly called to the party after the incident.
A source at the hotel has revealed that Diddy may be banned as a result of the accident, as management are concerned that the reports could dissuade high-profile clients from staying at the luxury accommodation.
The insider apparently confirmed: "We are not happy with Diddy."