Police broke through the doors of the house
Firefighters and police officers have launched a joint investigation into the blaze and attempted murder in the Crindau area of Newport.
Police with tracker dogs arrested a 25-year-old man close to the scene about 40 minutes after the alarm was raised on Thursday night.
The injured man - who has not yet been named - is in a critical but stable condition in the Royal Gwent Hospital.
Residents of Glasswork Cottages told how they heard a commotion in the early hours and called the emergency services when they saw smoke pouring from the windows.
Three police officers broke through the door and rescued the man inside who had already been attacked with a knife.
'Quiet and friendly'
"We are treating the incident as an attempted murder and we currently have a 25-year-old local man in custody," said Gwent Police Chief Inspector Carl Close.
Neighbours have described the 41-year-old who lived had lived in the house for the past 15 years, as "quiet and friendly" and had recently split up with his partner.
"Everybody's just in shock," said neighbour Linda Henderson.
"What we've heard is that he's been stabbed 20 times and that his dog is dead. We don't know how the dog died - whether he was killed in the fire or he killed the dog."
Another neighbour Elizabeth Blair said she had known the injured man for years.
"He seemed to be a nice boy," she said.
"He used to stop and speak to me. I thought he was alright."
On Friday, scenes of crimes officers and a special investigation team were conducting a details search of the house to establish how the fire started.
"We had to fight fires within the building from more than one location," explained Assistant Divisional Officer Michael Flannagan.
"Why that is, we've yet to investigate. But we know we've got some work to do on this incident."
A 25-year-old man is being held at Newport Central Police Station.