Frank Sendejo, who lives near the apartment complex where the explosion occurred, said Wednesday he had given a group of children a 40 mm shell.
Sendejo told The Bakersfield Californian that he thought the shell was spent and often used it as a "conversation piece." He said the firing pin and bottom shell casing had been removed, along with the gun powder inside.
"I thought it was harmless," he told the newspaper.
The children apparently were "tossing it up in the air, possibly hitting it," reports Jose Gaspar of CBS affiliate KBAK-TV.
Andrew Etcheverry, 8, died at the scene, and Jeni Marie Klawitter, 7, died at the Kern Medical Center, the county coroner said. The other victims, the oldest 12 years old, suffered minor to moderate injuries.
The explosion damaged homes and forced neighbors to wrap bloodied and dazed children in blankets.
"As you can imagine, this was a traumatic experience for the kids and their parents," said Bakersfield Police Detective Greg Terry. "So it's going to take a while to sort things out."
There have been no arrests or charges in the case.
"Police say they're taking their time with this investigation," Gaspar told CBS Radio News. "They say they will take appropriate action when they deem necessary, but at this point, nobody is under arrest."
Gaspar reports neighbors held a memorial Wednesday night in memory of the children.
"About 80 people turned out for the candlelight vigil. Strangers joined family and friends of the two children who died," Gaspar said. "It was a very emotional service, as people sang "Amazing Grace" and several prayers."