Two houses collapsed and a third suffered serious damage in the blast which happened around 2:40am in Mallowdale Avenue.
10 fire crews, six ambulances and four doctors were called to the scene, which one emergency worker described as "devastating."
Police evacuated houses in the vicinity of the explosion and cordoned off the scene.
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Casualties, believed to be suffering from serious burns, were taken to hospital in a fleet of ambulances.
A police spokesperson said: "We were called at 2.40am this morning (Sunday May 16th) to reports that a number of houses on the road had collapsed.
"Our officers attended and found two houses collapsed and serious damage to a third property.
"We can now confirm that sadly a young child has died as a result of the incident. The family have been informed and our thoughts remain with them at this distressing time.
"Another four people, two men and two women have been taken to hospital with serious injuries.
"A search of the site is still ongoing with Lancashire Fire and Rescue and North West Ambulance Service also in attendance.
"A safety cordon has been put in place and nearby residents have been evacuated.
"We are currently working with gas service engineers to make the area safe.
"Road closures also remain in place and people are being asked to avoid the entire area while we deal with this ongoing incident."
Electricity North West cut off supplies to the area around the scene.
A spokesman said: "Due to a major incident in the Heysham area our engineers are removing supplies for safety reasons.
"Given the nature of the incident we are unable to confirm how many properties will be affected or how long this will be for."
Neighbours reported being awoken by "a massive bang" in the early hours. One said: "I just can't believe it. I just feel shocked."
Deputy Chief Constable Terry Woods tweeted: "Heartbreaking that a child has died and four people seriously injured after a gas explosion. Multiagency response in ongoing at the scene. Thoughts are with all those families affected. Another devastating loss of life this week in Lancashire."