The blast ripped through three restaurants and damaged a combined burned area of 200 square meters at around 8.40 AM in the Zhejiang province's West Lake district.
Billowing flames and strong heat shattered the glass of passing vehicles, including a bus, causing most of the injuries, state-run Xinhua news agency reported.
Bottled Liquefied Petroleum Gas (LPG) has been blamed for the blast, the report quoted local officials as saying.
The fire has been put out and all the injured have been sent to hospitals, according to the city's fire department.
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Among the injured, two were restaurant employees while the rest were passengers in passing vehicles or pedestrians.
The district public security bureau has identified the two persons who died in the blast. One was on the bus and the other riding a bicycle when the blast occurred.
Meanwhile, police have taken the shop owner into custody.
The provincial blood centre has appealed to the local residents to donate blood.
Che Jun, the provincial Communist Party chief, called for all-out efforts to treat the injured, saying a thorough investigation needed to be conducted as well as extensive checks to rule out hazards that could undermine public safety.
Millions of tourists come to Hangzhou every year. They are drawn by the scenic beauty of its temples and lakefront location.
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