Overheating, over-charging generally causes the expansion you see. It could also be caused by high-current draw.
The reason for the expansion is the cathode. The cathode of a Li-ion battery like you have there is made of LiCoO2 I think.. , Lithium-Cobalt-Oxygen. During charging and during high current discharge, lithium atoms move in and out of the cathode. When lithium atoms migrate out of the cathode, the cathode undergoes expansion. Also, the oxygen bond to cobalt is weak, so the O2 is breaking away from the cobalt. So you have cathode expansion and increasing oxygen. This causes the battery package to balloon up. Now you have free (unbound) lithium ions and free oxygen ions and probably some O2 molecules there too, which is why you are being advised to NOT open it up and do a teardown, ever. Just watch a youtube video of lithium/oxygen reactions to know why. It has the potential to literally explode in your hands .
The other battery technology that is popular, LiFePO4, Lithium Iron Phospate, is far safer because the cathode, being made of LiFePO4, does not expand as lithium migrates out, and it does not release oxygen as easily as LiCoO2 cathodes do.
If we haven't already, we should really move completely over to LiFePO4 batteries for consumer use.