A four-storey building collapsed in Mumbai Saturday, killing five people in the second such incident in as many days and underlining shoddy construction practices in the financial capital of the country.

The dilapidated building, located in a busy market area in suburban Dahisar, was vacated two years ago but local vegetable vendors continued to use it as a night shelter, officials said.

"Five people died when the building collapsed early morning. We are awaiting more details," Mumbai Police spokesman Satyanarayan Choudhary told AFP.

Rescue operations were underway to clear the debris and search through the rubble for survivors.

A local lawmaker said the building had been evacuated two years ago after it was declared dangerous by the civic authorities but its redevelopment had been hampered by a court dispute.

"It was due to be re-developed but there was a dispute between the owner and tenants.... local vegetable vendors were taking shelter there," Vinod Ghosalkar told reporters.

Ghosalkar said authorities were attending to six people injured in the accident.

It was the fourth building collapse in recent months in the Mumbai area, including one in April that killed 74 people.

Two builders and seven others were arrested in connection with the collapse of the unauthorised and partly finished building after the April accident.

On Friday, an apartment block collapsed in Thane district, killing 10 people including five children in their sleep.

The collapses have highlighted widespread shoddy construction standards in India, where a huge demand for housing and pervasive corruption often result in cost-cutting and a lack of safety inspections.

Last week, part of a five-storey apartment block in central Mumbai caved in and killed 10 people. The accident was blamed on alleged illegal alterations to the structure, exacerbated by heavy monsoon rains.

The high cost of property in Mumbai and surrounding areas pushes many low-paid families, especially newly arrived migrants from other parts of India, into often illegal and poorly constructed homes.

India's urban housing shortage was estimated at nearly 19 million households in 2012, and in Mumbai the situation is so dire that more than half of the city's residents live in slums.