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, adding that two people were also seriously injured.
In a statement on Twitter, police said: "We remain at scene of a suspected gas explosion on Mallowdale Ave Heysham which has caused 2 houses to collapse & badly damaged another.
"Sadly, we can now confirm a young child has died & 4 other people have been injured, 2 seriously. Our thoughts are with all those affected."
Earlier, the force said officers were at the scene along with colleagues from Lancashire Fire and Rescue and North West Ambulance Service.
"A safety cordon has been put in place and nearby residents have been evacuated," they said.
Lancashire Fire said on Twitter that 10 units were called to the terraced row and firefighters were searching a collapsed property.
"A major incident has been declared after we (were) called to terraced houses on Mallowdale Avenue. It has been reported that there has been an explosion at a property and firefighters are searching the collapsed property," it said.
Several residents of the area tweeted that up to three houses had collapsed, and emergency services sirens had been heard near the scene for a prolonged time.
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."
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."
The North West Ambulance Service tweeted that it had sent units to the scene, with a priority to "ensure people receive the medical help they need as quickly as possible".
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.