The explosion occurred at around 7 am at the illegal workshop in a village in Changde city yesterday.
Five villagers, who were believed to be the workers manufacturing the fireworks powder, died on the spot, the Changde municipal government said in a statement.
The explosion caused a nearby house to collapse, killing an old man inside, state-run Xinhua news agency reported.
The suspect who ran the illegal workshop has been taken into custody by police, the statement said.