The disaster on Sunday highlighted rampant abuses in a sprawling network of illegal garment workshops.
Officials said authorities were struggling to control the thousands of Chinese factories that had transformed the town of Prato in recent years, often employing unregistered workers in conditions unions describe as near slavery.
Prato chief prosecutor Piero Tony said: "Most of the companies are organised like this. It's the Far West.
"Controls on security and issues relating to the workers are inadequate despite the efforts of local authorities and law enforcement officials.
"We are underequipped as a bureaucratic structure, we're designed for a city that doesn't exist any more, the city of 30 years ago."
The fire in an industrial zone near Prato killed seven workers who were apparently sleeping in an improvised dormitory built above the workshop where they were employed. They have not been formally identified and the cause of the blaze is still being investigated.
Mr Tony said prosecutors were preparing to open a formal investigation against two or three individuals into suspected offences including multiple manslaughter. He said the immediate suspects were all Chinese but he would not rule out targeting Italian nationals.