At least two people were killed and dozens more injured, the state governor Seyi Makinde said in a statement.
He added that preliminary investigations had indicated that illegal miners had been storing explosives in the house in the Bodija neighborhood of the state capital Ibadan.
Several houses were reported to have collapsed from the impact of Tuesday (January 16) evening's blast sending panicked residents into the street.
Olaitan Okanlawon said she was in her house with her two children when the ceiling suddenly collapsed.
"That was the first thing I saw. There was nothing else, I just had to make sure my kids were fine and we left the place. I had a lot of injuries, my back and ... it was a huge fall. Things fell, there were injuries, there were a lot of injuries but at least it was minor scratches compared to people that died and stuff."
Police cordoned off the blast site, where a huge crater could be seen.
Makinde said the state government would provide temporary accommodation for those who had lost their homes.
