Lancashire Fire said in a tweet units were called to a row of terraced houses on Mallowdale Avenue in the early hours of Sunday and that firefighters are searching a collapsed property.
Residents in Heysham described the noise of the blast as “like a bomb going off” with debris that covered nearby streets and fields.
Police said two people remain in hospital with injuries described as critical.
Speaking to reporters at the scene, Joe Edwards, Assistant Chief Constable of Lancashire Police, said: “Shortly after 2.40am this morning emergency services were called to residential properties following reports of a large explosion at the address.
“There is significant damage to the houses, at least two have been destroyed and a third is significantly damaged."
"As a consequence of that a number of people have been injured."
“The information as we know it is that there are four persons that have also been injured in the incident, two of which are seriously injured and two others who remain under medical assessment.”
“Tragically a young child has been killed as a consequence of what has happened and the thoughts of myself and all the emergency services are with the family at what is a distressing time."
Ben Norman, the Assistant Chief Fire Officer of Lancashire Fire and Rescue Service, said that fire crews remained at the scene and an investigation into the cause of the blast would be carried out “slowly and methodically”.
Lancaster City Council said that Salt Ayre Leisure Centre, in nearby Morecambe, was open as an evacuation centre for any residents who had been affected by the incident.
Resident Susan Faulkner, 74, who lives further down Mallowdale Avenue, said the blast was “like a bomb going off” and that she was still “shaken” by the incident.
“I woke up with this huge bang and I thought someone was breaking into my house,” she told the PA news agency.
“It was like a bomb going off, it was that kind of impact.”
“The sound really shook me, I’m still quite shaken by it. I’ve never experienced that before."
Ms Faulkner said that her own property and others in the immediate area had been damaged in the “devastating” explosion.
“It was quite a blast, I live quite a way down there and part of my side door was blown in, my next door neighbour’s plates were smashed,” she said.