The Australian government condemned the incident but insisted that it was not racially motivated.
The gruesome attack on Jaspreet Singh in the early hours of Saturday took place a week after Nitin Garg, a 21-year-old Indian student, was fatally stabbed in Melbourne, provoking India to renew its warning to the Australian authorities to ensure the security of its students.
Garg's body was flown here from Melbourne via Dubai Saturday afternoon and handed over to his family.
Reacting to the incident, India Saturday said it was "vigorously" pursuing with the Australian authorities the latest attack, and clarified that Singh's condition was "not critical".
Singh was attacked in Essendon while he was parking his car in the northwestern part of Melbourne shortly before 2.00 a.m. He is said to be in a stable condition in Alfred Hospital with burns to 20 percent of his body.
Police were told that Singh had dropped his wife home and gone to park his car after a dinner party when he was attacked in Grice Crescent.
According to the police, as Singh was getting out of the car, four men attacked him, pushed him back against the vehicle and poured an unidentified fluid on him. One of the men then ignited the fluid with a lighter and all four attackers fled, The Age newspaper said.
The victim reportedly ran from the car while peeling off his clothes.
Australia's Acting Prime Minister Julia Gillard said the federal government condemned all violence, regardless of motivation. "The government condemns all acts of violence in the strongest possible way," the Herald Sun quoted Gillard as saying.
"This matter remains under investigation by the Victoria police," she said, adding that the government would not comment further until the police provided more information.
Melbourne is the capital of Victoria state.
Police say the man is of Indian origin but they do not know whether he is an Australian citizen. Friends say Jaspreet Singh is living in the city on a spouse visa, ABC News said.
Neighbours across the street said they heard the car explode into flames but didn't notice any kind of fight or disturbance. The incident is being investigated by the arson and explosives squad.
Police have appealed for public assistance to find the victim's clothes, which he shed as he ran.
Crime squad investigators say the circumstances leading up to the 29-year-old being set on fire Saturday are "unusual" - but not racially motivated, the Herald Sun reported.
"I believe there's no reason at this stage to consider this in any way racially motivated," said Detective Acting Senior Sergeant Neil Smyth.
Days after the Australian authorities reportedly accused India of whipping up hysteria over attacks on students, the Indian government asked the media to exercise "utmost restraint in reporting on these sensitive issues, as it could aggravate the situation and could have a bearing on our bilateral relations with Australia".
"The Indian High Commissioner in Canberra and Consul General in Melbourne are following up this matter vigorously with the Australian authorities," India's external affairs ministry spokesperson Vishnu Prakash said in New Delhi.
The spokesperson clarified that the condition of the victim is not critical but he has been hospitalised and is receiving treatment.
After the fatal stabbing of Garg, India had issued an advisory asking Indians studying in Australia and those planning to do so to take extra security precautions while moving around in that country.
Stepping up pressure on Canberra in the wake of continuing attacks on Indian students, India Thursday had asked Australia to take "urgent remedial action" even as it cautioned against hysteria and stressed the "need for calm and balance."
External Affairs Minister S.M. Krishna had even questioned the choice of Australia as an education destination by Indian students, asking them to be more discriminating in the choice of courses they pursue in that country. He has also warned Australia that if attacks continued, it could impact bilateral ties.
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