A disaster has narrowly been avoided after a bus carrying more than a dozen students caught alight.

The bus was taking 18 students through the Northern Territory to Katherine when it burst into flames along the Stuart Hwy, near Adelaide River, about 3pm on Monday.

WATCH THE VIDEO ABOVE: Bus carrying students bursts into flames

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Footage captured by passer-by Jason Woodman, shows firefighters at the scene trying to extinguish the blaze.

Police told 7NEWS.com.au that the students, from a NSW school, had miraculously “exited the bus and no injuries were reported”.

Initial inquiries suggest the blaze had been caused by a mechanical fault that ignited diesel fuel.

After the fire was extinguished, the students were transported to the small town of Adelaide River before a replacement bus continued their journey.