Members of the flight crew rushed to help and eventually put out the fire by pouring a bucket of water on the headphones.
By that time, the battery and the plastic cover had melted and stuck to the floor.
"For the remainder of the flight, passengers endured the smell of melted plastic, burnt electronics and burnt hair," the ATSB said in its report.
The report did not mention the brand of headphones, but said it believed that a fault with a lithium-ion batteries was the likely cause.
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