She is the first fatality from the disaster, which saw crowds of young revellers engulfed in flames after being sprayed with clouds of multi-coloured corn starch.
The company which produced the starch said users had been warned of a potential fire hazard.
Around 1,000 spectators had attended the Color Play Asia event at the Formosa Fun Coast water park, just outside the capital Taipei, on Saturday evening.
Victim Lee Pei-yun, 20, was pronounced dead at Taichung's Chung Shan Hospital in central Taiwan at 0620 GMT Monday.
"Doctors pronounced Lee dead after her mother agreed to stop the treatment provided to her daughter," an official at the Taichung city government's health bureau told AFP.
The official confirmed that Lee had sustained 90 percent burns.
Media reported that Lee's 12-year-old brother was also hospitalised with 80 percent burns. Both were standing close to the stage when the fireball erupted, reports said.
Three suspects were released on bail late Sunday as prosecutors investigate them on charges of offences against public safety and negligence causing severe injuries.
The suspects include owner of Color Play Asia Lu Chung-chi, 41, who knelt in apology as he was bailed late yesterday.
Hardware equipment technician Chiu Po-ming, 33, and special effects worker Liao Chun-ming, 39, were also released on bail.
Two others were released without bail, but are currently barred from leaving Taiwan.
While it has yet to emerge exactly how the blast was triggered, authorities have speculated that heat from the stage lighting or cigarettes could have ignited the corn starch.
General manager of the water park Chen Hui-ying said the venue had "never heard such an activity could be dangerous".
But the company that supplied the corn starch to Color Play Asia warned of its flammability.
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