"A mine dam collapsed and swept away houses and cars in the area," said Palesa Chubisi, a spokeswoman for Free State Province Premier Sisi Ntombela.
A river of mud and water flowed from the disused diamond mine into a nearby residential area. It covered roads and swept houses away in Jagersfontein, a town about 100 kilometers southwest of the province capital, Bloemfontein.
At least one person was killed, but the overall death toll was unclear.
Free State authorities initially said three bodies had been recovered but later revised the figure down to one.
Earlier, Chubisi said 40 people including a pregnant woman were taken to local hospitals, four suffering from fractured limbs and the rest with bruises and hypothermia.
Mineral and energy resources minister Gwede Mantashe said there were up to five suspected deaths, four people missing and another four in critical conditions.
"Nine houses were swept away and 20 houses completely damaged. Now, that is a disaster," Mantashe told an online press conference.
Search and rescue operations at the scene were ongoing, with people in affected areas being evacuated to nearby farms, authorities said.
"The reports received thus far is that the flow of the water has ceased and the immediate threat is being stabilized," said Nkosazana Dlamini-Zuma, the minister in charge of disaster management.
National electricity utility Eskom said Jagersfontein was left without power after one of its substations was "engulfed by the mud".
"Due to the current situation in the Jagersfontein area and inaccessibility of our substation, it is impossible to estimate when supply will be restored or to determine the extent of the damage," Eskom said.
Once owned by diamond mining giant De Beers, the mine was acquired by Superkolong Consortium in 2010, according to the government, which described it as now "abandoned".
The Minerals Council South Africa industry group said the mine, which is not currently owned by any of its members, was shut in the 1970s.