A fire broke out at the water park in New Taipei city on Saturday evening when a Color Play Asia party was being held, which was joined by 4500 people.
Color powder, made of corn flour mixed with colored metal, is widely blamed for the tragedy.
Witnesses say the party was coming to a close when the last bunch of colored powder was ejected.
They say a sudden spark soon turned into a huge blaze which flew off in all directions following the color powder, engulfing the tourists.
At least 516 people were injured, including three from the Chinese mainland, and 194 were seriously hurt.
They are now in local hospitals.
No deaths have been reported.
This is the worst incident of mass injury in the history of New Taipei city.