Public broadcaster NHK said the cylinder was located close to a drinks and snacks counter put in place for a grand fireworks festival which takes place each summer in Japan.
An explosion was heard around 7:25pm local time and the counter and other objects were thrown in the air as a fire started and people fled, according to accounts and photographs posted on the Internet.
Many were badly hurt including two who received burns across their whole bodies, according to firefighters quoted by the channel.
Personal belongings were strewn across the area as investigators searched for clues.