A 30-year-old man, who had emergency surgery after the attack, has been arrested in connection with the deaths.
Police have not named the dead but say they lived in Jersey. Witnesses believe they were all related.
Officers were called to Upper Midvale Road at 15:00 BST on Sunday after reports of an incident at a flat in Victoria Crescent, which spilled outside onto the street.
Forensic officers have been examining the scene as police interview a number of witnesses to try to identify the victims.
Meanwhile, they are holding the suspect in police custody at Jersey General Hospital where he is recovering from surgery.
'Complex investigation' States of Jersey Police head of crime services Stewart Gull, who is leading the inquiry, said: "Clearly this complex investigation is in its very early stages as we try to establish exactly what happened.
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Mr Gull, who led the inquiry into the murder of five Ipswich women in 2006, admitted he was shaken by the Jersey incident and said it had been "pretty traumatic" for emergency services staff called to the scene.
"Dealing with multiple deaths of men, women and particularly young children, it has shaken the force but the officers who initially responded were tremendously professional," he said.
"Jersey is an incredibly safe island, probably one of the safest places in the western world. Incidents of this nature are an extremely rare occurrence."
He added that he was unable to confirm the victims' nationalities, speculate as to their relationship with each other or give the ages of the children.
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Some residents were unable to return to their homes while the crime scene was cordoned off.
Authorities, however, opened the town hall and a residential home to give them somewhere to stay.
Witness Andre Thorpe said he thought all the victims were members of the same family.
"For Jersey it was a major incident," he said.
Two ambulances turned up first because it was within a quarter of mile of the ambulance station. Then four or five police vehicles came, all blues and twos.
"They were trying to access a private house in the crescent. It was an old Victorian terrace, a lot of them are split into flats."Mr Thorpe added that the area where the incident happened was quite secluded.
"I was first aware something was happening when I saw people looking out for the ambulances as I walked up the road," he said.
The BBC's Edward Sault spoke to a neighbour, who said he saw police attempting to resuscitate someone on the pavement outside the house.
Another unnamed neighbour reported hearing children screaming.
"It was not like a playful scream - they were really screaming," he said.
Jersey General Hospital's emergency department was temporarily closed to all non-urgent cases as staff treated the victims.
Angela Body, director of operations at the hospital, thanked staff for coming in on their days off to help.
She said: "The teamwork spanned across many service areas including the ambulance, medical, nursing and support staff who all helped with a serious and unusual situation.
"As ever, staff worked quickly and in a professional way to help those who were brought in for treatment and care."
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