A spokesman for local carrier Mandala Airlines said several passengers had survived the crash in Medan, contradicting the city's top rescue official who said all 117 onboard died. The official Antara news agency put the number of survivors at six.
The plane was carrying 112 passengers and five crew.
"I could not believe it. After taking off, the plane really shook and then suddenly it plummeted to a main road on top of the cars below," passenger Freddy Ismail told El Shinta radio station from hospital. His name was on the passenger manifest.
Mandala's director Asril Tanjung said the cause of the crash was being investigated, but added foul play was highly unlikely.
Zainul Kahar, head of operations at Medan's search and rescue agency, said 30 people on the ground were also killed.
The plane slammed into the heart of a major residential area in the capital of North Sumatra province, breaking into pieces, setting fire to homes, cars and motorbikes, and sparking widespread panic, witnesses said.
"I arrived around 10 minutes after the accident. Burning bodies were everywhere," one local reporter said from the scene.
"Around 10 houses were burned, along with five to six minibuses. The plane was torn into pieces, we could only see the tail."
Survivors on the ground ran about frantically screaming the names of their relatives, added the reporter.
Among those onboard the flight were the North Sumatra governor and his predecessor.
Fierce flames licked at the wreckage as it lay on one of Medan's main roads before fire crews were able to extinguish the blazes. Plumes of thick black smoke rose into the air.
Kahar said some 20 homes were damaged by fire.
BURNT BEYOND RECOGNITION
Roni, an emergency room nurse at Medan's Adam Malik hospital, said it was chaos as victims were brought in. Other hospital officials said most were burnt beyond recognition.
"Ambulances keep going back and forth bringing the victims, who are both passengers and residents. Some are still alive, some are dead," Roni told Reuters.
Mandala's Tanjung said the plane had been made in 1981 and was fit for eight more years of flying. It was not raining when the plane took off, witnesses said.
"Temporarily, we are saying the cause is from take-off failure but we don't know yet whether it was from engine trouble, human error or weather," Tanjung told Reuters.
The plane came down 500 metres from the runway in Medan, Transport Minister Hatta Radjasa told El Shinta radio station. It was en route to Jakarta.
Medan, 1,425 km northwest of Jakarta, is the main gateway for aid into tsunami-hit Aceh province.
A few hours after the crash, heavy rain began to fall, hindering recovery efforts.
Mandala Airlines is one of Indonesia's oldest private carriers, operating a number of Boeing 737s. It competes in a crowded market since the establishment of numerous budget airlines in the past five years.
Indonesia's worst air crash occurred in September 1997, when a Garuda Airbus A-300B4 crashed in a mountainous area near Medan, killing all 222 passengers and 12 crew on board.
(Reporting by Achmad Sukarsono, Telly Nathalia, Tomi Soetjipto, Ade Rina, Harry Suhartono and Yoga Rusmana)
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