Reports of casualties vary from 35 to more than 100 people killed, including factory workers and neighbours.
Local police have confirmed the incident but have yet to provide further details. A huge fire reportedly followed the blast.
The dead and injured were taken to the Nnamdi Azikiwe University Teaching Hospital in Nnewi which has a predominantly Christian community.
Witness Chukwuemerie Uduchukwu, who has been to the scene of the blast, told the BBC that people had gone to the plant to fill up gas bottles ready to cook meals on Christmas day.
He said customers and workers in the building had been burned beyond recognition and that he had seen a dozen bodies brought out, with many more thought to be inside.
Such was the ferocity of the blast that houses nearby were also damaged.
"Five hours after the explosion and the depot was still burning," Mr Uduchukwu said, "with the Red Cross and the fire services still at the scene."
A reporter for Associated Press counted the remains of 100 bodies.
Another witness told the Vanguard newspaper that the blast was triggered when a truck began discharging cooking gas without waiting for the mandatory cooling time.
Passersby were also caught up in the explosion, the newspaper reported.
Witnesses described a huge fire with acrid black smoke hovering over the scene of the disaster.
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