Geisinger Medical Center in Danville has begun sending very premature newborns and some expectant mothers to other facilities while officials investigate, the hospital said.
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Four babies have recovered from an infection caused by the Pseudomonas bacterium, and one is still being treated with antibiotics, the hospital said.
Officials said they are working with state and federal health authorities to ensure the bacteria have been eradicated.
The bacteria are common and often harmless but can cause disease in "very fragile patients," Dr. Frank Maffei, the hospital's chair of pediatrics, said at a news conference.
The deaths, he said, "may have been a result of the infection complicating an already vulnerable state."
As a precaution, the hospital is transferring babies born at less than 32 weeks' gestation to other hospitals and diverting other expected premature deliveries to other hospitals. Full-term pregnancies amount to 40 weeks of gestation.
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"It's important to remember that we are only talking about diverting these very premature infants, less than 32 weeks, both the moms who would be delivering at that age or the babies already born," said Dr. Rosemary Leeming, the hospital's chief medical officer.
Doctors said they first became aware of an unusual infection in early August.
The neonatal intensive care unit is inside a children's hospital that is part of a larger campus. It could take weeks to determine how the infections occurred, although it's likely the pathogen was brought in from outside the children's hospital, investigators said.
Cultures of the water supply and surfaces inside the neonatal intensive care unit, where all the infections occurred, tested negative for Pseudomonas, officials said.
"It's really too soon to say exactly where the organism is coming from, but the information we have so far suggests that it's someplace outside of the neonatal intensive care unit," said Dr. Mark Shelly, Geisinger's director of infection control and prevention.
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The hospital has increased chlorination of water, bolstered water filtering, performed extra cleaning and changed some of its processes.
The investigation may not reveal exactly what went wrong, Shelly said.
Seven of the eight babies were born at less than 26 weeks of gestation, and the eighth was born at less than 27 weeks', according to the hospital.
The Danville hospital's neonatal intensive care unit treats more than 600 babies a year.