Local authority officials inspected the Richmond Hotel in the North Yorkshire resort of Scarborough last November after they became aware that it was used to house social security claimants rather than hotel guests. The authority demanded improvements by 10 April, including improved fire escapes and extra alarms.
But by last month none of the work had been done and the authority was considering prosecuting the owner and instructing its own staff to do the work and charge the hostel owner.
Last night, Scarborough council officials were considering what action to take in the wake of the deaths, though the owner maintained that the improvements would have made no difference.
Campaign groups said that the incident had been a tragedy waiting to happen and attacked the Government's failure to tighten regulations governing homeless hostels.
The infant, Teri Ann Jones, and Katherine Harrison, 33, who is not related to the girl, died when the fire started in a third-floor bedroom of the 60- room former hotel in North Marine Road.
Sixty other residents were evacuated from the building at about 2.30am and 12 people, including two firefighters, were taken to Scarborough General Hospital. One man who jumped from a window three floors up was in intensive care.
People were hanging from windows and screaming from the rooftop to be rescued when fire crews arrived. Firefighters found that conditions inside were horrendous, each room blanketed in thick black smoke.
'You could not see a thing. It was so dark and thick with smoke,' said one officer, David Sprintall. 'Ironically there was no fire damage in the rooms. It was the smoke which was the killer.'
Firemen attempted to resuscitate the child but she died in hospital. Her sister, Natasha, four, was revived, but was 'very poorly' in hospital.
Investigators began an inquiry to discover the cause but John Trebble, Scarborough council's chief executive, said that early indications suggested that it had not been malicious.
At a news conference he defended the path the council had taken, on the advice of the fire authority, after it became clear that the work it had demanded - updating the alarm and detection systems, upgrading fire doors, and measures to prevent the spread of smoke and fire - had not been done.
Richard Boddington, the hostel owner, said he had been waiting for council grants to finance the improvements and had been appealing for more time to complete the work.
Shelter, the homelessness charity, and the Campaign for Bedsit Rights, said 150 people died each year in what are described as houses of multiple occupation, 25 times the number who died in single-occupancy family homes.