The fire outside the Co-op on Glossop Road was captured by a passer-by using a mobile phone before emergency services arrived and blocked off the road and neighbouring Clark Street.
Pedestrians were seen walking past as flames shot out of a manhole cover.
Two fire engines are at the scene and Northern Grid engineers have been alerted to the incident.
Motorists have been advised to avoid the area, with delays likely.
A South Yorkshire Police spokesman said: "Glossop Road in Sheffield is closed to all traffic - vehicles and pedestrians.
"Clark Street is also closed.
"We have officers at the scene assisting with the road closures.
"Please avoid the area if you can and be advised that there may be significant delays if you are travelling in that part of the city."