The fire broke out on Saturday night in one of the establishment's 28 rooms, police said, and witnesses reported hearing a loud bang before smoke quickly engulfed the bar, on the third floor of a six-storey building.
The dead included two women and three Sri Lankan workers who were holding a company party with Korean colleagues, the Yonhap news agency said.
The 20 injured were taken to hospital for treatment.
Smoke and fumes spread quickly, making it hard for people to find the exits, and most of those killed died from inhaling toxic gases, Yonhap said.
About 100 firefighters battled the blaze as dozens of people evacuated the building, it said.
It was not immediately clear what started the fire and an investigation was under way.
In January 2009, at least eight people were killed in a fire in another karaoke lounge in the major southern port city.
Investigators blamed lax fire precautions and suspected staff negligence for the blaze, which gutted the basement bar in the Yongdo district.