At least 20 people were killed in the blast near the town of Katpadi in Tamil Nadu state, southwest of Madras.
Rescuers have removed seven bodies so far, but say they can see many more in the rubble.
Hopes of finding anyone still alive are fading as the heat generated by the blast was so intense it flattened the single-story building and twisted iron and steel roof supports.
Rescue efforts are also being hampered by fear of more live explosives in the debris.
Five people are in hospital with critical injuries.
The factory was set up by the Tamil Nadu state government in the early 1980s.
According to a government statement 30 workers were on duty at the time of the explosion.
Neftegaz.ru
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Scores dead in blast
Rescuers have worked through the night searching for survivors after a massive explosion ripped through a government-owned dynamite factory in India.
