The pollution disaster was discovered on Sunday when hundreds of dead trout were found washed up in the Pill River, between Withycombe and Blue Anchor.
Environment Agency spokesman Jim Grundy said it was feared pesticide or sheep-dip had leaked into the water.
Officers from the agency were on site yesterday recovering dead fish and taking water samples.
The casualties were mostly between six and eight inches in length and close inspection suggested they had been dead for two to three days. They included bullheads as well as trout.
The first dead trout were found on Sunday afternoon at a holiday park in Blue Anchor.
Agency officers then discovered hundreds of casualties as they began their investigation.
Officers were working their way up the catchment and concentrating their efforts on the area upstream of Withycombe, on the Brendon Hills.
Mr Grundy said: “Judging from the number of fish killed, we believe it was some kind of toxic chemical.
“It must have been pretty nasty because it also wiped out a lot of the invertebrate life in the stream.”
Samples have been sent to a Government laboratory at Starcross, near Exeter, and agency officials will visit local farms as part of the ongoing investigation.
The agency will continue to monitor the river and will shortly be sending one of its environmental appraisal teams to the site to take additional samples.
Earlier this year, the Environment Agency revealed how water flow in the Pill River had dramatically improved due to the revocation of a significant groundwater abstraction.
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