Lancashire Police said a safety cordon had been put in place and nearby residents had been evacuated in the town some 25 miles north-east of Blackpool.
Speaking to the BBC at the scene in Heysham, Joe Edwards, Assistant Chief Constable of Lancashire Police, said: "Shortly after 2.40am this morning emergency services were called to residential properties following a report of a large explosion at the address.
"There is significant damage to the houses, at least two have been destroyed and a third is significantly damaged
"As a consequence of that a number of people have been injured.
"Tragically a young child has been killed as a consequence of what has happened and the thoughts of myself and all the emergency services are with the family at what is a distressing time.
"Our thoughts are also with those individuals who have been affected by this incident.
"The information as we know it is that there are four persons that have also been injured in the incident, two of which are seriously injured and two others who remain under medical assessment.
"There is a multi-agency response in place. At the moment we are in the search and rescue phase.
"Our officers across all the agencies are working hard to make the area safe, not only for those in the immediate area but in the local community.
"That work will continue throughout the day after which we will give you further information in due course."
"We are asking people to please avoid the entire area while we deal with this ongoing incident," the force said.
The North West Ambulance Service tweeted that it had also sent units to the scene, with a priority to "ensure people receive the medical help they need as quickly as possible".
Electricity North West tweeted that it had paused electricity supplies to the area for safety reasons while the blast was being investigated.
A young child has been killed in a suspected gas explosion which caused two houses to collapse in Heysham, Lancashire.
Lancashire Fire said on Twitter that 10 units were called to a row of houses on Mallowdale Avenue around 2.30am on Sunday. Firefighters were searching a collapsed property.
Nearby residents said they heard a blast that sounded and felt like a "minor earthquake" or a bomb.
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."