Several witnesses said there were fireworks inside the club. Colectiv Club's Facebook page said the show would feature pyrotechnic effects.
Deputy Interior Minister Raed Arafat said 17 of the 27 dead had yet to be identified and that 146 people remained in hospital.
"Unfortunately, the death toll may change taking into account the severity of their injuries," he said after an emergency meeting early on Saturday.
A pillar covered with foam panels and the club's ceiling went up in flames and then there was an explosion and heavy smoke, the witnesses said. Many people admitted to hospitals had suffered burn and smoke inhalation injuries or were trampled.
TV footage showed police officers and paramedics trying to resuscitate young people lying on the pavement while sirens wailed with more ambulances deployed to the scene.
"There was a stampede of people running out of the (Colectiv) club," a man who escaped without shoes told Reuters.
A young woman who was released from the hospital after minor injuries described the club bursting into flames.
"In five seconds the whole ceiling was all on fire. In the next three, we rushed to a single door," she told television station Antena 3.
Deputy Prime Minister Gabriel Oprea said a criminal investigation into the causes of the incident was already under way, and the health minister launched a public appeal for blood donations.
Romania's President Klaus Iohannis said in a statement: "I want to assure you of all support from rescuing forces and ask you to trust they put all efforts to limit the impact of this catastrophe."
The government said it would declare three days of national mourning later on Saturday.
Some of the deadliest nightclub disasters in the world were started by fireworks.
In the southern Brazilian college town of Santa Maria in 2013, a musician lit an outdoor flare inside the Kiss nightclub and started a fire that killed at least 241 people, investigators said.
Fireworks were also blamed for nightclub fires in Russia’s Perm that killed 156 people in 2009 and in Argentina’s Buenos Aires in 2004 that killed 194.
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