More than 45 firefighters spent six hours tackling the inferno on Friday in a four-storey timber mansion in Green Island in Poole Harbour belonging to The Honourable Edward Iliffe, of Yattendon.
Crews Dorset Fire and Rescue Service were shipped over to the island when flames broke out at 7.20am and they set up portable pumps to pump sea water to the site and prevent the blaze from spreading.
The millionaire's luxury retreat - which is believed to be under construction - was severely damaged and some sections of the building collapsed.
The cause of the blaze is unknown and DFRS spokeswoman Emily Cheeseman said the force is carrying out an investigation.
Mr Iliffe bought the 45-acre island for £2.5m in 2005 and gained planning permission to develop the retreat two years ago.