The New Orleans riverfront has been hit by a series of massive blasts, and fires are raging in the area.
The blasts are believed to have involved a chemical factory and police have sent a team to see if toxic fumes have been released.
The news came as extra troops were sent to quell lawlessness in the city, where thousands are stranded without food or water in Hurricane Katrina's aftermath.
President Bush has admitted that the initial response was "not acceptable".
"We're going to get on top of this situation," he said, as he left the White House for a tour of Louisiana, Alabama and Mississippi.
"And we're going to help the people that need help."
Thousands are feared to have perished in the hurricane and floods, or while waiting for help.
The Senate has approved $10.5bn (£5.7bn) emergency aid, which the House of Representatives is expected to back within the next 24 hours.
But the head of the New Orleans emergency operations described the relief effort as a national disgrace.
And Mayor Ray Nagin has angrily denounced the level of outside help the city has received. "People are dying here," he said.
'Shoot to kill'
A large cloud of acrid, black smoke is drifting over New Orleans following Friday's blast along the Mississippi riverfront.
The incident in the already crippled city came after Louisiana's governor said 300 "battle-tested" National Guardsmen were being sent to quell the unrest.
"They have M-16s and are locked and loaded. These troops know how to shoot and kill and I expect they will," Kathleen Blanco said.
Washington pledged a further 4,200 guardsmen in coming days, and said that 3,000 army soldiers may also be sent to the city where violence has disrupted relief efforts.
The deployment came as thousands were finally taken from the Louisiana Superdome, where up to 20,000 have been corralled amid heat and squalor since Katrina struck.
But up to 60,000 could still be stranded in the city, the US coastguard says.
Looting has swept the city as people made homeless by the flooding have grown increasingly desperate.
There have also been outbreaks of shootings and carjackings and reports of rapes.
The federal emergency agency was trying to work "under conditions of urban warfare", director Michael Brown said.
The situation at the city's convention centre, where up to 20,000 other residents sought refuge, was also said to be desperate.
Families slept amid the filth and the dead.
The muddy floodwaters are now toxic with fuel, battery acid, rubbish and raw sewage.
Residents have expressed growing anger and frustration with the disorder on the streets and with the slow speed of relief efforts.
Governor Blanco told ABC she had "no idea" how many people had died, when asked about fatalities because of the inadequacy of the response.
"We're not into the blame game... I've been trying to save lives," she said.
The Houston Astrodome in Texas had to temporarily close its doors because of lack of space, after receiving 11,000 evacuees.
The White House estimates an area of about 90,000 sq miles (234,000 sq km) has been affected by the hurricane.