The Paravoor temple in the city of Kollam was crowded with thousands of devotees celebrating the Hindu new year when an explosion happened at around 3.30am local time.
The blaze then spread quickly through the temple, trapping people within.
More than 200 others were injured, officials said.
Television footage showed images of huge clouds of white smoke billowing from the temple, as fireworks were still going off in the night sky.
Successive explosions sent huge chunks of concrete flying as far as half a mile, eyewitnesses said.
According to reports, the blaze is thought to have been caused by a firecracker that fell on a shed where fireworks were stored for the festivities.
One part of the temple complex is reported to have collapsed and there are fears people may be trapped underneath.
Kerala home minister Ramesh Chennithala said firefighters and police worked through the night to douse the fire and take the injured to hospital.
"Now the situation is under control... the police are on the spot," he said.
State health authorities said many of the injured had been driven to the state capital as hospitals in Kollam were stretched.
Every year, the Paravoor temple holds a competitive fireworks display, with different groups putting on successive light shows for thousands of devotees gathered for the last day of a seven-day festival honouring the Hindu goddess Bhadrakali.
This year's competition was happening without permission, after the state's High Court banned competitive light shows at temples.
State Labour minister Shibu Baby John said incident would be investigated.
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