Officials initially said a munitions store had exploded but one resident told the BBC a lorry loaded with fireworks had exploded.
In fighting further east, in Sirte, at least 30 pro-government fighters died.
They were killed in fighting with militants from the so-called Islamic State group.
Coastal road blocked
Garabulli is about 50km (30 miles) east of Tripoli and 140km west of Misrata.
A BBC producer close to the scene in Garabulli said the coastal road was completely blocked and he could hear sounds of gunfire from a distance.
A mix of armed civilians and local militias from the coastal town were manning checkpoints on the edge of the town along the coastal road.
Cars trying to pass through were being searched but it was not clear for what.
The situation is very tense, says Rana Jawad, the BBC's North Africa correspondent.
The Garabulli resident who spoke to the BBC said the entire affair had started after a fighter from a Misrata militia purchased items at a grocery store and allegedly refused to pay for them.
The owner of the shop allegedly shot and killed him and then there was a retaliatory attack against the store by the militia.
The shop was burnt down and so was the owner's family home nearby.
Armed residents protested over the attack and the presence of the militia in the town.
It was then that a store nearby that had some depot, or lorry laden with fireworks for sale, exploded.
The resident's account could not be independently verified or backed by a second source in Garabulli.
"The number of casualties is rising and we are working hard to transfer them to nearest hospitals," Mohamed Assayed, a local official, was quoted as saying by Reuters news agency.(BBC)