The chief investigator's finding supports witness accounts that indicated a band member set off a flare during a performance Sunday at the Kiss nightclub that led to the devastating fire, EuroNews.com reported.
Media outlets have differing death tolls, with some reporting 234 people died while others said the death toll was 235.
"The people who bought this material knew it was for external use and not to be used indoors but they used it because it was cheaper," police inspector Marcelo Arigony said.
Three people have been arrested, including a member of the band.
Video shot Tuesday showed soot covering the nightclub's doors and debris strewn across the floor.
Police said the number of people inside the club exceeded its capacity, and noted it had combustible material in the ceiling and faulty fire safety equipment.
Marco Maia, president of Brazil's Chamber of Deputies, said he will order a review of existing safety legislation for various settings, including nightclubs, The Rio Times reported.
"My aim is to look at all existing legislation and suggest that there be Brazil-wide legislation with minimal safety requirements that should be adhered to by all the states and municipalities," Maia said.
A number of cities, including Rio de Janeiro, Sao Paulo and Brasilia, have ordered that all nightclubs be re-inspected.
After the fire, it was learned that the Kiss' operating license expired in August 2012.