A deadly fireball that ripped through a crowd of young people at a Taiwan water park sparked after coloured cornstarch powder was ignited by stage lights, an investigation has reportedly revealed.

In June, the powder was sprayed over the crowd of hundreds of partygoers at the Formosa Fun Coast water park.

It exploded when it came into contact with stage lights, whose surface temperatures reached more than 400 degrees Celsius, the Liberty Times reported, citing a fire department investigation.

Eleven people were killed and hundreds were hospitalised, some with third-degree burns covering more than 90 per cent of their bodies.

The event, which drew about 1,000 people — mostly aged between 18 and 25 years — turned into a nightmare when the inferno ripped through the crowd.

Horrific video footage showed people running for their lives and screaming as they tried to escape.

Two months on, 42 of the victims are still in critical condition, according to the Ministry of Health and Welfare.

The report was submitted to prosecutors, but officials declined to comment on its content.

"We will use this report as a reference," Shihlin district prosecutors' office spokeswoman Su Pei-yu said.

"We can't reveal details at the moment as the investigation is still underway."

The report by the fire department ruled out earlier speculation the blaze was caused by a cigarette.

Three suspects were released on bail as prosecutors investigated them on charges of offences against public safety and negligence causing deaths.

Six more are being investigated, prosecutors said, including both the chairman and the president of the water park.