The cloud covers an area of 90sq km (56sq miles) above some 14 villages near the town of Lviv.
Hundreds of villagers from the area have been evacuated and at least 20 people have been taken to hospital.
The fire aboard the train carrying highly flammable yellow phosphorous was put out late on Monday, reports say.
The train was travelling from Kazakhstan to Poland and Ukrainian rescue teams are still said to be working at the site of the accident.
Ukraine's Deputy Prime Minister Oleksandr Kuzmuk compared the accident to the blast at the Chernobyl nuclear reactor in 1986.
"A disaster has happened. After the Chernobyl catastrophe we are dealing with a case that can pose a real threat for our people," the Associated Press news agency quotes Mr Kuzmuk as saying.
"It is an extraordinary event, the consequences of which cannot be predicted."
While hundreds of villagers have been evacuated, those who remain in the area have been advised to stay indoors and avoid eating vegetables or animal produce sourced locally.
Phosphorus compounds are mainly used in fertilizers, but can also be used to produce pesticides, cleaning products and explosives.
Source: BBC News