Firefighters rushed to the fire in the 4300 block of Compton Boulevard at about 2 a.m. Monday. They found heavy smoke and fire inside the building.
Officials say the building was a mechanic shop on the lower part, and the top part of the building was a loft, where a mechanic and his family lived.
A mother and daughter, along with the father and three other children, were asleep when the fire broke out. Authorities say the mechanic and three of the children were able to make it out of the building, but they were unable to locate the wife and a daughter, identified by family members as 34-year-old Teresa Lopez and 11-year-old Margareta.
"The husband said that he tried calling his wife repeatedly and that he did not have any luck, either the phone was off or the battery had gone dead," said Inspector Scott Miller of L.A. County Fire.
Miller said there were pack-rat conditions inside the building, making the search more difficult.
After a 10-hour search with the use of cadaver dogs, rescuers found two bodies in the back of the smoldering wreckage. Coroner officials say the bodies were found next to each other.
Neighbors in the area say they were woken up by what sounded like explosions.
"It sounded like a big explosion. I thought it was an earthquake at first. Then I thought it was one of these mobile homes," said neighbor Reginald Simms.
Fire crews say the explosions could have been propane tanks or the loft collapsing.
East Compton Boulevard was shut down for hours due to the investigation. The cause of the fire is unknown at this time. Code enforcement officers were also at the scene, trying to determine if the loft was up to code. It was a loft that was added on later, according to fire crews.
The Associated Press contributed to this report.