Homes were evacuated over fears about smoke and possible building collapse.
No-one was injured during Wednesday's fire at the Mandarin Palace restaurant on Queen's Quay.
The fire service and the police are still investigating the cause of the blaze.
Up to 130 firefighters from across Northern Ireland worked overnight to tackle the fire.
The Foyle area fire service commander, David Hayburn, said there has been extensive damage.
"We had 15 pumping appliances and three aerial appliances in operation yesterday, the main effort was to stop the fire spreading and endangering those nearby flats.
"The crews worked very hard to contain the fire in the restaurant area but we're very sad to say that the restaurant has suffered extensive fire damage," Mr Hayburn said.
"The whole cooking area and the kitchens in this restaurant are destroyed, it has suffered not just substantial damage but also collapse of the structure and the moment we're still tackling the remaining fires to make the building safe."
The fire service said they are treating it as "cause not determined" because they're "not sure at the moment how the fire started"
Police forensic teams will examine the scene later on Thursday.
PSNI Ch Insp Andy Lemon said it was one of the biggest fires he had ever seen in the city.
"I actually watched it from my office and it started off with small wisps coming from the roof and then very quickly there was smoke billowing from the eaves developing into a major fire.
"At one stage the roof actually collapsed in the centre and we had flames 20 maybe 30 ft high.
"The potential was that this fire could have spread to the whole of the block."
Paul Arthur from an adjacent business, told BBC Radio Foyle he was concerned about damage to his premises.
"Fortunately for us our building is not on fire but there's a lot of smoke and it's furniture that we do and that will do a lot of damage to our product. But the product doesn't matter, it's the people next door that I feel for."
Residents evacuated from their homes after a major fire at a Chinese restaurant in Londonderry have been allowed to return home.