Peruvians began a second day of official mourning Monday, following a blaze fuelled by fireworks in a downtown Lima shopping area that left 276 dead and 20 missing, casting a pall over New Year's celebrations.

Officials said they believe the final death toll from the fire that broke out late Saturday could exceed 300, as rescue workers continued to sift through the charred rubble.

"In many cases, it will be difficult to identify those dead because the bodies have been badly burned," said Admiral Juan Luis Podesta, chief of the country's civil defence institute, on Sunday.

Civil defence official Jose Luis Bazan said earlier the process of removing the bodies was proceeding slowly, in part because some of the charred remains were trapped in burned-out cars.

Rescue workers were using an infrared video camera to search through the debris for additional bodies, officials said. The area has been declared an emergency zone.

According to witnesses, the fire began late Saturday in a store selling fireworks for New Year's celebrations, after vendors tested firecrackers for some clients.

It quickly spread through a four-block area of historic downtown Lima packed with fireworks vendors and customers. The blaze destroyed tall buildings, several old homes, and scores of automobiles.

In recent weeks, city officials had said the area was dangerous due to the high quantity of fireworks stockpiled in shops, attics and basements.

"The fire was due to the irresponsibility of the merchants, who failed to heed the warnings and recommendations of officials," said prosecutor Maria del Pilar Peralta.

Fireworks are widely used for Christmas and New Year's celebrations in Peru.

Most of the victims were burned to death or died from smoke inhalation, according to officials, who said the tragedy was one of the deadliest ever to strike Peru's capital.