Several women and children were among those injured when the blast occurred in the in densely populated Hussain Agahi Chowk area of Multan this morning.
Officials said two injured persons died at Nishtar Hospital.
The blast severely damaged the four-storey building in which the explosive materials had been stored. It also triggered a massive fire while a nearby three-storey building collapsed.
Fire fighters were unable to extinguish the blaze due to strong winds, officials said.
Rescue service officials said several persons, including two children, were feared to be trapped in the debris.
Footage on television showed people digging through the rubble with their hands as a cloud of dust hung over the area.
Authorities evacuated the area due to fears that the four-storey building might collapse.