District Magistrate Rajiv Rautela said on Saturday that the deaths of the children being treated for different ailments at the Baba Raghav Das Medical College Hospital in Gorakhpur city in Uttar Pradesh state were due to natural causes.
He denied that an insufficient oxygen supply led to their deaths.
Parents said that the oxygen supply to the ward ran out on Thursday night and that patients' families were given self-inflating bags to help the children breathe.
"That's the time when the death of the children peaked," said Mritunjaya Singh, whose 7-month-old son was admitted to the hospital and was not among the dead.
The Uttar Pradesh government has ordered an investigation.
Prashant Trivedi, the state's top health official, acknowledged that there was a problem in the pipeline supplying oxygen.
"But the situation was managed through oxygen cylinders," Trivedi said. "The hospital administration has enough supply of cylinders in its stock. So the report about death of children because of oxygen issue is false."
The parents said the company that supplies oxygen to the hospital had earlier threatened to stop the distribution of oxygen unless the government paid its long-overdue bills.
Rautela said that the hospital owed 6.8 million rupees ($106 000) to the company, but added that it had adequate numbers of oxygen cylinders.
Parmatma Gautam, whose 1-month-old nephew, Roshan, died when the oxygen supply stopped, said the hospital authorities and the district administration were trying to cover up their failure to pay the bills on time.
"We saw our baby struggling to breathe and we couldn't do anything," Gautam said as tears flowed down his weather-beaten cheek.
The family had rushed the new-born to the hospital from neighbouring Siddharthnagar district on August 9 because he had a high fever.
"We are now going back with his body," Gautam sobbed.
The federal health ministry sent a team of specialists to the hospital on Saturday to verify what caused the deaths at the facility, which provides healthcare to a vast swath of Uttar Pradesh and neighbouring Bihar state.
Meanwhile, opposition leaders took to social media to blame Prime Minister Narendra Modi's Bharatiya Janata Party, which rules the state, for its neglect and indifference to people's health.
Opposition Congress Party Vice President Rahul Gandhi tweeted: "Deeply pained. My thoughts are with the families of the victims. BJP govt. is responsible and should punish the negligent who caused this tragedy."
Some of the children had been treated for encephalitis, a disease that preys on the young and malnourished and is rampant in the state during the monsoon season, which runs from June till September.
The hospital, which has become a major centre for children with encephalitis, has treated nearly 370 cases in the last two months. Of these, 129 children died, said Satish Chandra, a hospital spokesperson.
Health activists said successive governments had ignored the threat posed by encephalitis as it was a disease that affected poor, malnourished children.
"Encephalitis has a mortality rate as high as 30%. The government needs to tackle it with a rigorous campaign," said R N Singh, a medical doctor who has been leading the fight against the disease in Gorakhpur district.
"Commonly, this disease affects the voiceless poor, so it has not got the attention it warrants," Singh said.
Gorakhpur is located 300km southeast of the state capital, Lucknow.