The bus was traveling near the intersection of MacArthur Boulevard and Ardley Avenue, near Interstate Highway 580, when the man was set on fire at about 5:20 p.m., police said.
"He was asleep," Oakland police spokeswoman Johnna Watson said. "He woke up and his clothes were on fire."
When officers arrived at the scene, they found the victim suffering from burns to his lower body, according to police.
AC Transit spokesman Clarence Johnson said the victim was taken to the burn center at St. Francis Memorial Hospital in San Francisco.
Watson said the teen suffered second- and third-degree burns but is listed in stable condition.
According to Johnson, at least a dozen passengers were on board the AC Transit Line 57 bus when they noticed a man on fire toward the rear of the bus.
Johnson said passengers told the driver what was happening and the driver stopped the bus to call for help, at which point several people exited through the back of the bus.
Police said the perpetrator got off the bus and fled before officers arrived. A description of the suspect has not yet been released.
Watson said police are reviewing footage of the incident captured by a surveillance camera on the bus, and that it appears only one suspect, a male, was involved in the crime. Police have not yet released a description of that person.
She said it appears no accelerant was used to start the fire. The motive remains under investigation.
The AC Transit passengers who were on the bus were picked up by another bus, Johnson said.
Anyone with information about the assault or about the suspect is urged to call the Oakland Police Department's Major Crimes Section at (510) 238-3426 or the anonymous tip line at (510) 777-2805.
The motive for the crime remains under investigation.
ABC7 News contributed to this report.