Residents described the noise of the blast as "like a bomb going off" with debris that covered nearby streets and fields.
Lancashire Police said they were called to the scene of the explosion in Heysham at 2.40am on Sunday after reports that "a number" of houses on Mallowdale Avenue had collapsed.
The force later confirmed the death of a child and said four people had been injured, two seriously.
It is suspected the damage was caused by a gas explosion.
Lancashire Fire said on Twitter that 10 units had been called to the terraced row and firefighters were searching a collapsed property.
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.
"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.
"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."
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".
"We'll work to conclude this incident safely and work with support and concern for the local community to ensure they can rebuild and go back to their normal lives in due course," he said.
"Sadly at this time it means there are a number of people whose homes have been affected and therefore they can't remain in the area.
"We ask people to have patience and particularly to have the family that have been affected in mind."
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.
"The sound really shook me, I'm still quite shaken by it. I've never experienced that before.
"It was like a bomb going off, it was that kind of impact."
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 way down there and part of my side door was blown in, my next door neighbour's plates were smashed," she said.
"There's been lots and lots of people and police around and everyone trying to help everybody else.
"There's debris everywhere, all on the next streets and in the fields. I think there's a bit on my roof as well.
"I've been very lucky. When I see what those poor souls have had happen to them, it's devastating. I'm really sad for those people, it's such a sad thing to happen to them."
Dan Knowles, who lives four streets away from the explosion, said he thought there had been an earthquake.
"My wife and I thought there was an earthquake which woke us, the whole house shook," he told the PA news agency.
"We immediately checked on our kids and got back in bed. We then heard sirens and my wife checked Facebook, when we found out that there'd been a gas explosion.
"We stayed indoors and switched everything off at the source and then sat up all night worrying."
A Gofundme page set up to help Mallowdale Avenue residents had reached more than £20,000 by 2pm on Sunday.
Heather Brandwood, who manages a pub in Morecambe, set up the fundraiser and told the PA news agency it was "humbling" to see the community pull together in such a way.
She said residents were queuing up in the car park of the Hurley Flyer pub to donate clothing and toiletries to evacuated residents.
"We are very conscious that people were evacuated from their homes with immediate effect. We have heard from an elderly couple who left in their pyjamas. There is a woman who is in literally nothing but her nightie," she said.
"The general public has been fantastic, and they have risen to the challenge. There is a lot of goodwill in Morecambe."
Local MP David Morris, who represents Morecambe and Lunesdale, wrote on Twitter: "My thoughts and prayers are with all of the families on Mallowdale Avenue following the incident this morning.
"Thank you to all of the emergency services who are currently on the scene."
Electricity North West wrote on social media that it had paused electricity supplies to the area for safety reasons while the blast was being investigated.