Daniel Ricciardo led a Red Bull one-two as Lewis Hamilton's championship hopes went up in smoke at a dramatic, action-packed Malaysian Grand Prix on Sunday.

Hamilton was leading with 15 laps to go when his engine exploded. "No, no," cried the Englishman as flames appeared at the back of his car, leaving Ricciardo leading teammate Max Verstappen.

Championship leader Nico Rosberg survived a first-bend spin involving Sebastian Vettel and a 10-second penalty to take third place and extend the gap over Mercedes teammate Hamilton to 23 points with just five races remaining.

Hamilton was almost in tears with his head in his hands after the dramatic end to his race which has dealt a severe blow to his chances of securing a third drivers' championship in a row.

Hamilton is driven back to the pit, after his car caught fire during the Formula One Malaysian Grand Prix in Sepang on Oct 2, 2016. - AFP
He had looked all set to snatch back the lead from Rosberg, who was relegated from second on the grid to 21st after he was hit by Vettel on the first bend.

Vettel was forced to retire with a broken front suspension in the incident that also involved Verstappen.

Hamilton had got away cleanly form pole position and sped off into the distance, clear of the trouble behind him.

He looked to be heading for a comfortable win until his engine let go in the most spectacular fashion.

An ecstatic Ricciardo celebrated his first win of the season on the podium with a "shoey" -- drinking champagne from his driving boot.

Verstappen, who turned 19 on Friday, celebrated his podium finish and his birthday by also drinking the sweaty cocktail.