Local media reports quoted the police as saying that a man broke into the three-storey Kyoto Animation Co studio in the morning and sprayed an unidentified liquid around.
Thirty people still remain unaccounted for in the fire that started around 10.30 a.m. at the studio known for producing popular TV animation series and artefacts, Japan's public broadcaster NHK reported.
The 41-year-old suspect was detained and taken to hospital with injuries. He reportedly admitted to pouring a gasoline-like substance on the premises before setting it on fire.
The police said some people witnessed the man screaming "die" as he set fire. Many bodies were found on the second floor of the building, where about 70 people were believed to have been working when the incident took place, according to Kyodo News.
Knives were also found at the scene.
Eyewitnesses said they heard a series of explosions and saw black smoke billowing out of the building. People were later seen being carried out of the studio covered in blankets.
"A person with singed hair was lying down and there were bloody footprints," a 59-year-old woman who lives nearby told Kyodo News.
"I heard a bang. The black smoke rose and the burning smell was awful," said a hair salon manager.
Kyoto Animation, known for short as "KyoAni" in Japan, has produced popular TV animation series including "K-On!" and "The Melancholy of Haruhi Suzumiya" (Suzumiya Haruhi no Yuutsu), which depict the daily lives of high school girls.
On social media, many fans expressed their shock and posted pictures of their favourite KyoAni shows.
A GoFundMe campaign titled "Help KyoAni Heal" was also started, with more than $50,000 raised in an hour.
( With inputs from IANS )