A Reuters witness saw several collapsed houses and wrecked cars from the impact of Tuesday's blast, which sent panicking residents into the streets.
Emergency services and security officials used bulldozers to clear debris during a search and rescue operation on Wednesday in a neighborhood of Ibadan, the capital of Oyo state about 130 km from Nigeria's commercial capital of Lagos.
Some houses had roofs blown off and windows shattered. The owners watched from a distance as officials searched for survivors.
Police cordoned off the blast site, where a huge crater could be seen from a distance.
"I was in the house with my kids and I just saw the ceiling and roof coming down on us. I have a lot of injuries, (including) my back," said Olaitan Okanlawon, a mother of two.
Okanlawon said she slept at a hotel with her children and came back to collect some of her belongings from her damaged house.
In a statement, the governor, Seyi Makinde, said there were two deaths while 77 people were treated for injuries, most of them being discharged.
"Preliminary investigations by the security agencies revealed that illegal miners occupying one of the houses in Bodija had stored explosive devices there which caused the blast," the governor said.
The state government would provide temporary accommodation for those who lost their homes, Makinde added.
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