Irene is currently a category three storm, with winds of 185km/h (115mph), and is expected to strengthen as it heads toward the US east coast.
Lovely Bay settlement on the remote Acklins Island was devastated, Bahamas officials said, but there were no immediate reports of casualties.
The huge storm has brought flooding and power cuts across the Caribbean.
At 15:00 GMT on Thursday, Irene was located 115km (75 miles) north north-east of the Bahamas capital, Nassau, the US National Hurricane Center (NHC) in Miami said.
The storm was approaching Abaco Island in the north-west Bahamas, forecasters said.
Irene’s projected path is expected to take it well offshore of the east coast of central and northern Florida later on Thursday and early Friday, according to the NHC.
The hurricane is forecast to approach the coast of North Carolina on Saturday.
Lovely Bay on Acklins Island in the southern Bahamas was badly hit, the National Emergency Management Agency (NEMA) said.
As Hurricane Irene sweeps over the Bahamas and heads towards the Carolinas, Peter Gibbs shows us the latest forecast track.
On its website, The Tribune newspaper said homes had “been completely washed away or have lost entire roofs, power lines have been downed and trees are blocking roads”.
Crooked Island saw wind gusts of more than 160km/h, with a school’s roof “completely blown off and its windows blow out”, NEMA reported.
On Mayaguana Island, Irene knocked out power, and damaged at least 40 houses.
Officials are urging people throughout the Bahamas to stay indoors in a safe and secure structure.
Nassau, on the most populated island of New Providence, was expected to see some flooding.
So far, there have been no reports of casualties.
“As a general statement, we do a fair job of managing hurricanes so personal injuries, we hope, will not be substantial,” Bahamas Prime Minister Hubert Ingraham told the Associated Press (AP) news agency.
On Tuesday, Irene pelted the UK overseas territory of the Turks and Caicos Islands with high winds and heavy rain.
Hundreds of people in the Dominican Republic took refuge in schools and churches after they were displaced by storm flooding. One man was reported to have died in flooding.
Irene also brought flooding to neighbouring Haiti, where at least two people were reported to have died.
In Puerto Rico, the storm knocked out power to more than half the island and affected the water supplies of more than 100,000 people.
A 62-year-old woman died while attempting to drive over a swollen river near the capital, San Juan, AP reported.
And on Tuesday, more than 80 families in the town of Canovanas lost their homes when a river rose suddenly in heavy rain, El Nuevo Dia newspaper said.
US President Barack Obama declared an emergency, making the island, a US protectorate, eligible for federal help.