The incident occurred on Sunday morning as a large number of people gathered to collect petrol from the vehicle, according to rescue services.
Residents could be seen walking past blackened and twisted bodies piled by the side of the road.
Earlier, television footage showed shooting flames and a thick plume of smoke as firefighters battled to extinguish the blaze.
The charred wreckage of dozens of motorcycles and cars could be seen scattered on the highway, along with kitchen utensils, pots, water coolers, jerrycans and buckets which victims had brought to collect the petrol.
Local sources told that most of the victims were residents of nearby areas who were collecting fuel from the oil tanker, which had overturned after skidding off a national highway in Ahmedpur East.
Analysts said the reaction of the crowds is not surprising, given the problem of fuel shortages and poverty.
“If you go to these areas of Bahawalpur … the poverty level here rises up to 65 percent at times,” Sabir Shah, a journalist at GEO TV in Lahore, told Al Jazeera.
“In these conditions, with these figures, how can you expect people not to collect cooking fuel for themselves? This petrol is being used as cooking fuel by many people in nearby fields.”
Details were unclear but some witnesses suggested the vehicle had suffered a burst tyre, according to Raja Riffat, the regional police chief.
“When it turned over the residents of the nearby village of Ramzanpur Joya rushed to the site with buckets and other containers, and a large number of people on motorcycles also came and started collecting the spilling fuel,” he told the AFP news agency.
“After about 10 minutes the tanker exploded in a huge fireball and enveloped the people collecting petrol. It was not clear how the fire started.”
Al Jazeera’s Kamal Hyder, reporting from the capital, Islamabad, said the vehicle overturned on a “main logistical supply” route and “a large number of people rushed to the scene and started to collect fuel” that began spilling from the truck.
“Suddenly the area was engulfed in flames, and most of the people were caught in those flames. Apparently most of them were already carrying fuel, so they had no chance,” he said.
“We are told most of the bodies are burnt beyond recognition.”
A doctor in Ahmedpur East said more than 100 people had been brought to the local hospital with more than 80 percent burns before they were rushed to larger hospitals in Multan and Bahawalpur.
At least 90 injured people were moved to Bahawalpur Victoria Hospital and other health facilities.
Children were among the dead and injured, according to Mohamed Ahmed, a hospital doctor.
People with severe burns were being sent to other cities because the hospital lacked facilities to treat so many patients at the same time, he said.
Rana Sanaullah, Punjab’s law minister, told private ARY television that DNA tests were being used to identify the dead.
He said the driver of the fuel tanker had survived the crash and been taken into custody.
Nawaz Sharif, Pakistan’s prime minister, expressed his grief at the accident and ordered authorities to make sure the victims were treated at the best medical facilities, his office said in a statement.
Source: Al Jazeera and agencies