About 700 people gathered outside the Holiday Inn Express in Rotherham, before clashing with police.
Some rioters hurled pieces of wood, bottles and chairs, and sprayed fire extinguishers at police officers.
South Yorkshire police said at least 10 officers were injured, including one who was left unconscious with a head injury.
Footage showed a bin on fire and protesters, some draped in St George and union flags, chanting: "Get them out." The demonstrators appeared at one point to storm into the hotel, with reports of a fire inside, and people peering out of windows.
Yvette Cooper, the home secretary, condemned the rioters, saying: "The criminal, violent attack on a hotel housing asylum seekers in Rotherham is utterly appalling. Deliberately setting fire to a building with people known to be inside.
"South Yorkshire police have full government support for the strongest action against those responsible."
Protests at the Holiday Inn Express began at midday, immediately turning into a riot when a mob of far-right individuals, mostly men, smashed windows and set a stairwell in the building alight, temporarily overwhelming police.
Shabnam Shabir, who came as part of a group of anti-fascist counter protesters, said she had been left "traumatised" when her group was surrounded and kettled by the farright mob, who chanted racist words.
"It was a lot of angry, angry, angry far right," she said. "This is very scary."
She was left stranded in her car outside the hotel, unable to leave until the rioters had left.
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