The blast in the San Pablito market in the city of Tultepec injured around 70 people, according to local reports, and flattened stalls - leaving piles twisted and charred debris.
Rescue workers were treating casualties suffering from blast and burn wounds, with some victims reportedly suffering burns to more than 90 per cent of their bodies.
Dramatic footage posted online showed a massive plume of smoke filling the air as fireworks exploded in all directions and terrified market-goers ran for their lives.
Tultepec's mayor told local media that at least 12 people were killed in the disaster.
Luis Felipe Puente, head of national emergency services, said the number of injuries could rise.
He said some homes in the area were damaged and asked people not to come within three miles of the site because it was still dangerous.
The Red Cross said it had sent more than 30 ambulances and dozens of paramedics to the scene to treat the wounded.
Video showed rescuers and market-goers walking through the debris as smoke hung in the air after the blast.
Other footage showed people frantically using clothing in an attempt to put out fires as the cloud of smoke was visible from several miles away.
-Mirror