People are being warned to stay away from the river.
A fire investigator is at the scene working out the cause of the blaze.
Residents from up to 40 nearby houses were evacuated to a school when flames took hold of the factory on Dale St overnight.
A Fire and Emergency spokeswoman said fire crews are damping hotspots as they finish their work.
She said the factory was extensively damaged, but no injuries had been reported.
Eight fire trucks from Kaiapoi and surrounding areas rushed to the blaze.
Photographer Angela Torrie, who lives over the road from the factory, said she did not notice the blaze until firefighters arrived early this morning.
Torrie said smoke at the rear of the factory quickly turned into flames, as they moved forward.
"Initially it was just over the back and there was lots and lots of black smoke and then the flames just started appearing and every now and then we could hear something obviously exploding in there and really loud bangs and stuff collapsing.
"But the flames just continued to get bigger the further they came forward in the factory."
Deputy Mayor of Waimakariri Neville Atkinson said the fire was a major blow for Kaiapoi and Sutton Tools was a major employer in the town, employing up to 120 workers.
He said the council was gathering as much information as it could.
"We want to support not only Sutton Tools but also the employees that are there and council will do whatever it can to make life easier for them in this time of crisis for them," he said.
"Major employer in the town; been here for over 50 years. They've had their ups and downs and unfortunately for them at the present time this will be a down for them but I'm sure with the spirit they have and the spirit they've had in the past that they will pull through this in the best manner they can."
The Waimakariri District Council is talking with factory owners to assess the situation.
The Australian-headquartered company also has plants in Australia and the Netherlands.
- RNZ
