The plane was on Thursday headed for Gatwick Airport, south of the British capital, Air India said, while police officers said it crashed in a residential area near the airport.
More than 100 bodies, most of them badly charred, had been brought to the local government hospital for autopsy, police said.
"The building on which it has crashed is a doctors' hostel ... we have cleared almost 70 per cent to 80 per cent of the area and will clear the rest soon," a senior police officer told reporters.
Parts of the plane's body were scattered around the building into which it crashed, photographs and videos from the area showed. The tail of the plane was stuck on top of the building.
India's CNN News-18 TV channels said the plane crashed on top of the dining area of state-run BJ Medical College hostel, killing many medical students as well. It showed a visual of a portion of the aircraft perched atop the building.
Rescue workers said at least 30 to 35 bodies had been recovered from the site and that more people were trapped.
The passengers included 217 adults, 11 children and two infants a source told Reuters. Of them, 169 were Indian nationals, 53 were Britons, seven Portuguese, and one Canadian, Air India said.
Australia's High Commission in New Delhi and the Consulate-General in Mumbai are urgently following up with the local authorities to find out whether any Australians were on board, a spokesperson for Australia's Department of Foreign Affairs said.
Aviation tracking site Flightradar24 said the plane was a Boeing 787-8 Dreamliner, one of the most modern passenger aircraft in service.
It was the first crash for the Dreamliner, which began flying commercially in 2011, according to the Aviation Safety Network database. The plane that crashed on Thursday flew for the first time in 2013 and was delivered to Air India in January 2014, Flightradar24 said.
"At this moment, we are ascertaining the details and will share further updates," Air India said on X. "The injured are being taken to the nearest hospitals."
The crash occurred just after the plane took off, television channels reported. One channel showed the plane taking off over a residential area and then disappearing from the screen before a huge jet of fire can be seen rising into the sky from beyond the houses.
Visuals also showed debris on fire, with thick black smoke rising up into the sky near the airport.
They also showed people being moved in stretchers and being taken away in ambulances.
"My sister-in-law was going to London. Within an hour, I got news that the plane had crashed," Poonam Patel, a relative of one of the passengers, told news agency ANI at the government hospital in Ahmedabad.
Ramila, the mother of a student at the medical college, told ANI her son had gone to the hostel for his lunch break when the plane crashed. "My son is safe, and I have spoken to him. He jumped from the second floor, so he suffered some injuries," she said.
According to air traffic control at Ahmedabad Airport, the aircraft departed at 1.39pm from runway 23. It gave a "Mayday" call, signalling an emergency, but thereafter there was no response from the aircraft.
Flightradar24 also said that it received the last signal from the aircraft seconds after it took off.
Boeing said it was aware of initial reports and was working to gather more information. Boeing shares fell 6.8 per cent to $US199.13 in pre-market trade.
Britain was working with Indian authorities to urgently establish the facts around the crash and to provide support to those involved, the country's foreign office said in a statement posted on its website.
"The tragedy in Ahmedabad has stunned and saddened us," Indian Prime Minister Narendra Modi posted on X. "It is heartbreaking beyond words."
British Prime Minister Keir Starmer said images emerging of the crash were "devastating", and that he was being kept informed as the situation developed. A Buckingham Palace spokesperson said King Charles was also being kept updated.
