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The explosives, which were being dispatched for a road construction project, detonated on a truck at the Karadiyanaru police station, 260 km east of Colombo, military spokesman Major General Udaya Medawala said.
'Our initial reports said that at least 60 were killed, but the latest accounts say 25 - consisting of 16 policemen and nine civilians - were killed,' he said.
He said more than 50 people were injured.
Witness accounts said that the damage was extensive, with bodies strewn over a distance of 200 to 300 metres and some still buried under debris.
The explosion occurred when officials of the road construction project came to collect the dynamite from the police station, where the stocks were stored for safety purposes.
Deputy Inspector General of Police Ravi Wijegunawardena said the explosion was accidental and investigations were under way into what caused the detonation.
However, police chief Mahinda Balasuriya, accompanied by a team of officials from the Criminal Investigations Department, were flown into the area to carry out investigations.
A police officer at the scene said the blast levelled the buildings in the police compound.
'We do not know how the explosion went off, but it seemed that it was triggered in one of the trucks, immediately setting off the explosions in the other containers as well,' the officer said.
A civilian who escaped the blast said that there were others who were at the police station to deal with routine matters at the time of the blast.
'I called over at the police station to collect a police report and was told I had to wait for another hour. I went out of the compound to have a cup of tea when the blast went off. I escaped, but some others who came with me were not so lucky,' Thangavelu Ravindran said.
He said that bodies were still under the walls of the buildings and the police and villagers were trying to get them out.
Forty-seven people injured in the blast were admitted to two hospitals in the eastern district of Batticaloa while four others were transferred to Colombo for treatment.
The country's Eastern Province has been calm since government troops recaptured the area from Tamil separatist rebels in 2008. Government troops then went on to defeat the rebels in their northern stronghold.
Major reconstruction projects in Eastern Province, including roads, have got under way after the return of peace to the area.
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