Captain Andrew Meyers of the Los Angeles County Sheriff's Department said officers had responded to emergency calls around 10:20pm on Saturday and found people pouring out of the premises.
"The officers made entry to the location and located additional victims," he said.
"The Monterey Park Fire Department responded to the scene and treated the injured and pronounced 10 of the victims deceased at the scene.
"There are at least 10 additional victims that were transported to numerous local hospitals and are listed in various conditions from stable to critical.
"The suspect fled the scene and remains outstanding."
Police gave no description of the suspect, and did not say what kind of gun he used.
Monterey Park, about eight miles (13 kilometers) east of downtown Los Angeles, is home to around 61,000 people, the majority of them Asian or Asian American.
Local resident Wong Wei told the Los Angeles Times his friend had been at the dance club, and had been in the bathroom when the shooting erupted.
When she emerged, she saw a man carrying a long gun and firing indiscriminately, as well as the bodies of three people, two of them women and one person who he said was the boss of the club.
The paper reported that Seung Won Choi, who owns a seafood barbecue restaurant near the scene said three people had run into his restaurant and told him to lock the door.
The three said there was a man with a semiautomatic gun who had multiple rounds of ammunition on him, and would reload every time he ran out, Choi told the paper.
The Times reported that tens of thousands of people had gathered earlier in the day for the two-day Lunar New Year festival, which is one of the largest in southern California.
Meyer said detectives did not know whether the suspect knew his victims or whether it was a targeted attack.
"We will look at every angle," he said, adding oficers were reviewing surveillance footage.
"It's just too early in the investigation to know whether this incident was a hate crime or not," he told reporters.
Investigators were also checking reports that an attempted shooting at a similar setting in the neighboring city of Alhambra was related, Meyers said.
Gun violence is a huge problem in the United States, which saw 647 mass shootings last year, according to the Gun Violence Archive website, defined as an incident with four or more people shot or killed, not including the shooter.
More than 44,000 people died from gunshot wounds in 2022, more than half of which were suicides.
The country has more weapons than people: one in three adults owns at least one weapon and nearly one in two adults lives in a home where there is a weapon.