The fire at the Shuaiba refinery started at 7 a.m. (0400 GMT) "due to an explosion," said Assem Jihad, the Oil Ministry spokesman.
"Fire fighters and technical teams have controlled the fire, which hit the gas unit," Jihad told The Associated Press. An investigation was under way and production is continuing.
Basra, where about 80% of Iraq's oil reserves are located, is Iraq's second-largest city, 550 kilometers southeast of Baghdad.
The Shuaiba refinery, on the southern outskirts of Basra, has a capacity of 160,000 barrels a day but has been functioning below capacity at about 100,000 barrels a day.
Last week, a technical fault in a production unit sparked two fires in the country's largest oil refinery in the northern town of Beiji, 250 kilometers north of Baghdad.
An engineer was killed and 10 workers suffered burn injuries in those fires.
Iraq's three main oil refineries, Beiji, Shuaiba and Dora in Baghdad - are running at roughly half their capacity, processing a total of about 350,000 barrels a day, compared with about 700,000 before the U.S.-led invasion in 2003.
The shortfall has forced Iraq to turn to imports of oil products such as gasoline and kerosene, including from neighbors Iran, Kuwait and Turkey.
Iraq, the holder of the world's third-largest crude oil reserves with an estimated 115 billion barrels, aims to boost crude production to 3 million barrels a day by the end of this year.
Parliament is currently considering an oil law to divvy up the country's oil and gas among Shiites, Sunnis and Kurds - one of the benchmarks sought by the U.S. to achieve national reconciliation.