The eight-car No. 408 Taroko train was traveling from Taipei to the eastern coastal city of Taitung on Friday when it derailed at 9:28 a.m. local time.
Authorities added that 72 people were still trapped inside carriages while 61 passengers had been hospitalized.
Images of the crash scene show train carriages ripped apart and crumpled against the sides of the tunnel, preventing rescuers from reaching passengers.
Taiwan: Dozens feared dead in train crash
Passengers in some carriages still in the tunnel had to be led to safety, the railway administration said.
The crash occurred near the Toroko Gorge scenic area on the first day of a long holiday weekend when many people were hopping trains on Taiwan's extensive rail system.
Due to a long history of deadly earthquakes, Taiwan has experienced rescue teams on permanent standby to deal with disasters and retrieve trapped people.
Many people who were standing for the journey were thrown about when it crashed.More news: One officer killed after driver rams into US Capitol barricade
A live Facebook broadcast by UDN outside the tunnel showed a row of undamaged train carriages with rescuers helping passengers escape.
The train was carrying nearly 500 people on its way from Taiwan's capital, Taipei, to Taitung on the east coast, when it derailed in a tunnel just north of Hualien.
"It felt like there was a sudden violent jolt and I found myself falling to the floor", an unidentified female survivor told the network, saying she suffered a cut to her head. With the train still partly in a tunnel, survivors climbed out of windows and walked along the train's roof to reach safety after the country's deadliest railway disaster.
During the festival, people return to ancestral villages to tidy up the graves of their relatives and make offerings.More news: U.S. sees common interest with China on Iran
In 2018, 18 people died and 175 were injured when a train derailed in the island's northeast.
Taiwan's eastern railway line is usually a popular tourist draw down its dramatic and less populated eastern coastline.
The fire department showed a picture of what appeared to be wreckage of the truck beside the derailed train, with an aerial image of one end of the train still on the track next to the construction site. The train's driver was listed among those dead, while several other casualties have yet to be identified.
In 1991, two trains collided in Miaoli County, western Taiwan, resulting in 30 fatalities and injuring more than 100.More news: Look Forward To Staying In Touch: Trump Launches New Website
The Apple Daily newspaper said the island's worst crash was in 1948 when 64 died.