Fire crews were called to the former Zanzibar club and Bethel Community Church in the Stow Hill area of Newport at 6.30pm on Friday.
Gwent Police said significant damage was caused by the fire, which was brought under control after three hours.
More than 70 firefighters using 10 fire engines and 11 supporting appliances, including a crane, were needed to tackle it.
A 43-year-old man and a 36-year-old woman from Newport were being held on Sunday morning after being arrested on suspicion of arson.
Around 40 people were evacuated as a precaution after the fire broke out, while others were told to keep doors and windows closed, Jennie Griffiths, joint head of South Wales Fire and Rescue Service, said.
Bethel Community Church organised a prayer meeting on Sunday morning in the Stow Hill car park.
Pastor Andrew Cleverly said: “Our building may be gone, but the church is alive.”
Shocked former regulars at the nightclub, which was also previously known as Brooklyn Heights and Lasers, took to social media to comment.
Twitter user @WelshMumWriting wrote: “So sad for the old Brooklyn Heights/ Zanzibar building, and awful for Bethel. A loved centre for the community. Awful, really awful.”
Police say the cause of the fire is still under investigation and have appealed for witnesses to come forward.
Local commander, Supt Ian Roberts, said: ‘We are continuing to work with South Wales Fire and Rescue Service and Newport City Council to examine the scene and establish the exact cause of the fire.
“We are appealing for witnesses who may be able to assist us with identifying people who were inside the derelict nightclub building at around 6pm yesterday.”
He added: “My thoughts are with the Bethel Church Community at this difficult time and I have been in contact with the pastor to offer my condolences and support.”
Anyone with information can call police on 101, quoting 4447 15/06/18 or call Crimestoppers anonymously on 0800 111 555.
The fire came just eight days after local Tory activist Michael Enea emailed councillors over fears the building could “collapse or end up going up in flames”.
Mr Enea became concerned after a video surfaced online showing the inside of the former club.
In the email, he wrote: “It appears the inside of the building is in total disrepair.
“The outside structural integrity of the building is in question whereby the roof has caved in totally, with the top floor open to the sky.
“There are squatters staying in the building with evidence of drugs and needles lying around the place.
“Could the planning department inspect the building as I fear this could collapse or end up going up in flames. The building is clearly not safe and secure [and it’s a very big building].”
Following the email, a site visit was carried out – but only the exterior was examined.
Mr Enea told Press Association: “It was very lackadaisical. We’re calling for an investigation into why it wasn’t a proper site visit with the owners.”
Mr Enea said the video showed people walking around the inside of the venue, as well as drug paraphernalia and candles visible on tables.
When he heard about the fire on Friday night, he said he and others were “angry and frustrated”.
“It could have been prevented,” he said. “Everybody is devastated. A lot of people have fond memories of that nightclub.”
Mr Enea also attended the church’s service in Stow Hill car park on Sunday morning.
He added: “It was a very sombre service. It was looking to the future rather than looking at the past.”
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Two people have been arrested over a blaze that gutted a disused nightclub and adjoining church in South Wales.