Residents in a nearby building screamed as a column of flame shot hundreds of feet into the air just before midnight, briefly forming a mushroom cloud, video posted on social media and verified by Reuters showed.
The government said three people had died in the explosion at a gas refilling plant and 280 more were being treated at hospitals around Nairobi. The Kenyan Red Cross said others were being treated at a triage point.
The fire engulfed a nearby textile and garment warehouse, while damaging several vehicles and commercial and residential properties, the government said.
"The fire caught up with me from almost one kilometer away as I was escaping," survivor Edwin Machio said.
"The flames from the explosion knocked me down and burnt me on my neck," he added, taking off his shirt to show burnt flesh on his shoulders and upper arms.
Pictures from the scene of the fire showed one body lying on the ground, covered with a blanket, while smoke billowed from several burning houses nearby.
Kenya's Energy and Petroleum Regulatory Authority, EPRA said last year it had rejected three applications for construction permits for a Liquefied Petroleum Gas, LPG storage and refilling plant at the site of the explosion because of the high population density around it.
EPRA said it had asked the applicant to submit a risk assessment "indicating the radiation blast profiles in the unfortunate case of an explosion" but that this was never done.
It was not immediately clear who owned the site.
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