The victims had been collecting petrol from the pipeline in the south of the country for resale on the black market when a spark ignited the blaze on Sunday, three days after the pipe started leaking.
The officials blamed the spill on sabotage, saying that pipelines were vandalised either to steal fuel for resale or for political motives.
"The casualty [toll] is bigger than initially thought and more are still dying. At least 500 people are so far dead," said Joy Aigbe, a nurse in the oil town of Warri, where many victims were taken.
She said many of the dead were women and children who had thronged the area with cans and buckets to collect petrol from the pipeline belonging to the state-owned Pipeline and Products Marketing Company (PPMC).
No official death toll has been announced, but hospitals in Warri, Sapele and Eku were reportedly full of hundreds of burns victims, many of whom were not expected to survive.
The disaster scene was littered with bodies burnt beyond recognition. Plumes of thick black smoke rose over the area. "It is finished," cried Charity Unurhoro, after finding the horribly burnt bodies of her mother and brother. "Now everything is over for me." As she cried, a man told a young relative to fetch a wheelbarrow to take the corpses home for burial.
Many of the victims were found in a concrete ditch where a pool of petrol had collected close to the pipeline. A patch of land the size of a soccer pitch was charred by the fire.
"One pathetic sight was that of a woman with her baby still tied to her back, both of them burnt to death," said a witness. "In many cases only the skeletons of the victims are left."
Nigeria's military ruler, General Abdulsalami Abubakar, visiting the scene near Warri, pledged to tackle the problems that led to it.
"I see a human tragedy and we will do the best we can to alleviate it and the problems that led to it," he told reporters in the village of Apawor yesterday.
PPMC officials said the flow through the pipeline, which carried petrol from the refinery in Warri to the northern city of Kaduna, had been stopped, the blaze was under control and was expected to be out by the end of the day.
A similar fireball killed at least 200 people in nearby Cameroon in February after two rail tankers collided.
Sabotage for theft has grown in Nigeria, where poorly maintained refineries fail to meet demand, resulting in frequent fuel shortages. "Some pipelines are vandalised by people who want to siphon fuel to sell, while others [pipelines] are caught in the [ethnic] clashes in the Warri area," Bimpe Adeyemi-Wilson, a spokeswoman for PPMC, told reporters in Lagos.
"In the past 18 months three similar incidents have been reported in different parts of the country in which a total of 22 people died," another official told Reuters.
But residents in the area were furious over the deaths. "This is a tragedy of huge proportions," the Rev Andrew Imadu said at one funeral in Jesse. "Our own people have been driven by deprivation to such a desperate search for livelihood."
Nigeria's oil region has been disrupted by unrest among local communities who complain they are neglected by government and foreign oil companies. This month ethnic Ijaw youths have stopped the flow of one-third of Nigeria's oil exports of over two million barrels per day (bpd).
Italy's Agip on Monday said crude oil exports had resumed at its Brass River terminal where the protests had shut in 130,000 bpd for two weeks in the eastern Niger Delta.
But the siege on the facilities of Royal/Dutch Shell and US-based company Chevron, west of the delta around Warri, has not lifted.
The situation is further complicated by ethnic rivalries, which erupted in Warri in rioting on Friday with three people dead. Further skirmishes were reported on Sunday between Ijaws and their Itshekiri rivals, but no deaths were reported.
Apart from threatening the source of more than 90 per cent of the export income of Africa's most populous country of 104 million, the crisis in the oil region also raises concerns about General Abubakar's promise to restore civilian rule next May.
Kofi Annan, the United Nations Secretary-General, yesterday called the pipeline explosion in southern Nigeria a human and environmental disaster and expressed condolences for the 500 people killed.
"This is a major tragedy and environmental disaster," he said in a statement that included condolences "to the families of the victims as well as to the government of Nigeria". - ReutersReuse content