Workers were producing firecrackers in Kheri village, in the state of Madhya Pradesh, on Wednesday afternoon (local time), according to the Press Trust of India (PTI) district police official G Janardhan.
While 11 of them have been admitted to the Balaghat district hospital, three others were rushed for life-saving treatment to adjoining Nagpur in Maharashtra.
Meanwhile, Chief Minister Shivraj Singh Chouhan announced a compensation of Rs 2 lakh each to the next of kin of the deceased.
According to the superintendent of police (SP) Balaghat, Amit Sanghi, the explosion was set off by sparks in the crackers because of the intense heat, at around 3.30 pm.
Firefighters doused the flame completely by Wednesday evening. He said the government would also pay for the medical expenses of the injured.
He added that the victims were workers of the factory and the incident took place when the production was on.
"Of the 10 people injured in the incident five succumbed at the hospital", Bharat Yadav, Balaghat district collector told Xinhua.
Yadav said it was unclear what caused the blast, but suspected a worker may have callously tossed a burning beedi (a local type of cigarette) inside. "What exactly triggered the fire is not yet known".
A magisterial inquiry has been ordered into the incident.