Police said the accident happened after the train smashed into truck that slid onto the tracks from an embankment in Toroko Gorge.
"There was a construction vehicle that didn't park properly and slid onto the rail track," Hualien county police chief Tsai Ding-hsien told reporters.
"This is our initial understanding and we are clarifying the cause of the incident," he added.
Breaking: Fire department says several feared dead and injured after a train carrying around 350 passengers derailed in a tunnel in Hualien County, Taiwan. (Video via 鄭榮貴 on Facebook) pic.twitter.com/WTyMeoXJQ1— PM Breaking News (@PMBreakingNews) April 2, 2021
Local media pictures from the scene showed the back of a yellow flatbed truck on its side next to the train.
President Tsai Ing-wen's office said she had ordered hospitals to prepare for a mass casualty event.
"The top priority now is to rescue the stranded people," it said in a statement.
The accident occurred near the coastal city of Hualien.
Pictures published by local news website UDN showed the front of the train inside the tunnel had been pulverised into a twisted mesh of metal.
Railway police said at least 36 passengers were classified as "out of hospital cardiac arrest", a term for someone showing no signs of life.
A further 72 people were still believed to be trapped inside train carriages while 61 passengers had been sent to hospital.
The Central Emergency Operation Center gave a slightly lower suspected death toll of 26 people showing "no signs of life".
Another live broadcast by UDN outside the tunnel showed at least two undamaged train carriages with rescuers helping passengers escape.
Escape by roof
"It felt like there was a sudden violent jolt and I found myself falling to the floor," an unidentified female survivor told the network.
"We broke the window to climb to the roof of the train to get out."
The eight-car train was travelling from Taipei to the southeastern city of Taitung and was carrying some 350 passengers.
Breaking News: At least 34 people were killed in a train derailment in Taiwan, the authorities said. The crash is Taiwan’s deadliest in decades. https://t.co/1LL0lZPJrO— The New York Times (@nytimes) April 2, 2021
The accident occurred at the start of the busy annual Tomb Sweeping Festival, a long holiday weekend when Taiwan's roads and railways are usually packed.
During the festival, people return to ancestral villages to tidy up t he graves of their relatives and make offerings.
Taiwan's eastern railway line is usually a popular tourist draw down its dramatic and less populated eastern coastline.
With the help of multiple tunnels and bridges, it winds its way through towering mountains and dramatic gorges before entering the picturesque Huadong Valley.
Friday's crash looks set to be one of Taiwan's worst railway accidents in recent decades.
The last major train derailment in Taiwan was in 2018 and left 18 people dead at the southern end of the same line.
The driver of the eight-carriage train was later charged with negligent homicide.
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