Nishimatsu Construction was responsible for choosing compressed air to pressurise the tunnel. The Health and Safety Executive's investigation revealed that the firm had failed to calculate whether the ground above the tunnel could withstand the required air pressures.
The HSE said that debris from the blast, which occurred at 4.45am on 23 February 1998, fell on several tennis courts nearby and a section of the pitch at George Green's School, which is attended by children aged between 11 and 18.
School buildings were also damaged, along with adjacent properties. The HSE said the explosion, which occurred in a tunnel, created a 22 m wide crater.
Phil White, the HSE's head of operations, said that had the blow-out occurred a few hours later then a public disaster might have resulted.
There could have been significant numbers of injured schoolchildren
Phil White, HSE
He said: "Almost undoubtedly there would have been significant numbers of seriously injured schoolchildren, with possible loss of life among those closest to the location of the blow-out."
The HSE said that the explosion was caused by a compressed air blow-out during pressure testing in the southbound tunnel near Mudchute DLR station Nishimatsu was also ordered to pay £145,000 in legal costs and its own legal fees. It admitted contravening section 3 (1) of the Health and Safety at Work Act 1974, which stipulates that firms must ensure that those not in their employment are not exposed to safety risks.
In passing sentence on the firm at Middlesex Guildhall Crown Court judge Ian Karsten said that Nishimatsu had breached its duty of care under health and safety legislation, putting many members of public at risk.
He said: "That inevitably leads to the conclusion that a substantial penalty is required."
Building revealed in February last year that the HSE intended to bring a prosecution against Nishimatsu over the explosion.