The PSNI believes dissident republicans were responsible for the firebomb that caused extensive damage to a section of Derry's Everglades Hotel last night.
According to the PSNI's district commander in the area a device was left in the hotel's reception by a man who said he was from the IRA.
The reception area of the hotel in Prehen Road was severely damaged by fire.
However, there are no reports of injuries, a spokeswoman said.
A masked man was seen throwing the device inside the hotel at around 11.15pm last night.
The PSNI responded along with Ammunition Technical Officers and the fire and rescue service.
A police spokeswoman said that while the ATO officers were working to make the device safe, there was an explosion that caused a fire.
She praised "the swift actions of hotel staff and responding police officers in ensuring all guests were quickly evacuated".
"Their actions have undoubtedly helped to prevent a tragedy," she added.
Hotel guests were transported to other hotels in the city.
The PSNI has appealed to the public for help in tracing the man who caused the explosion.
So far no organisation has claimed responsibility for the incident.
The man responsible was wearing a balaclava and CCTV footage will be examined as part of the PSNI investigation.