The fire began while more than 55 labourers were working on the out-of-service LPG ship at plot number 60 of the Gadani ship-breaking yard, they said.
The ship belonged to ex-chairman of the Ship-breaking Yard Association Rizwan Diwan Farooqi who has been arrested.
Rescuers were still looking for three people, while President of the labours' association Bashir Mehmood Dani claimed that eight are missing, Dawn reported.
In November last year, 26 people were killed and 58 others injured during a series of explosions that occurred during work on an unused oil tanker at the yard.
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The ship had caught fire also in December last year.
Thousands of labourers work in perilous conditions, often for a pittance, at the ship-breaking yards, the report said.
There is no government agency to monitor and evaluate the operations at the yard and there is a lack of health and safety standards for the dismantling and recycling of materials and metals.