"We have six bodies in two city hospitals and more than 30 charred bodies are still at the site of the explosion," said Hamid Taathi, head of Diwaniyah's health department.
The exploding pipeline, which carried oil byproducts, sparked a massive fire.
Several people had been siphoning fuel from the pipeline when the explosion occurred in an industrial zone, 130 kilometres south of Baghdad.
A police spokesman said the reason for the explosion was not immediately clear, but added the massive fire in the area was hampering rescue efforts, and that Iraqi and coalition forces had cordoned off the area.
The town was the scene of fierce clashes between the Iraqi army and Shi'ite militia yesterday that left 40 people dead, but the situation today was calm, the army said.