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The Central Disaster Emergency Operation Center said police and soldiers had been drafted in to help firefighters in a neighbourhood of apartment buildings and small shops in the port city of Kaohsiung.
Media reports suggested the death toll was likely to rise sharply.
A Reuters photographer said the blast had set a long stretch of Kaihsuan Road on fire, sent flames dozens of metres into the air and overturned parked cars. Rescuers formed a chain to pull dozens of injured from a vast crater in the street.
The body of a child, either dead or injured, lay alongside large piles of rubble.
Residents told Formosa TV that they had seen smoke with a "gas-like smell" coming out of drains in the street shortly before the explosion. The city's fire department said the blast had been caused by a gas leak.
Some residents said the force of the explosion was similar to that of an earthquake.
Local authorities set up an emergency centre to be staffed by servicemen coordinating the rescue operation