The aircraft, used by a parachuting school and carrying five trainee parachutists and five instructors, went down shortly after take-off from Nancy-Essey airport, officials said.
Some of the trainees' family members were at the small regional airport and witnessed the crash, Interior Minister Laurent Nunez told reporters.
"The plane crashed about 300 metres from the runway," he told reporters at the scene.
"The emotion here is intense."
A witness who declined to be identified told Reuters the plane was climbing about 11am when the engine noise suddenly stopped, as if it had cut out.
He said he saw no fire, explosion or other visible sign of a problem before the crash.
Yves Seguy, the regional prefect, told BFM the aircraft plunged vertically to the ground.
The crash occurred in a residential area near a shopping centre, with the wreckage of the single-engine plane sitting on a bike path.
"Give or take a few metres and the accident could have caused collateral casualties," Seguy said.
The plane banked to the left after take-off and crashed less than a minute later, according to the flight tracking service Flightradar24.
Police cordoned off the crumpled wreckage.
Flight tracking sites identified the plane as a single-engine Pilatus PC-6, a small transporter of freight, passengers and skydivers.
Media reports said the aircraft was registered in Germany.
Transport Minister Philippe Tabarot said it was France's biggest aviation accident involving skydiving in about 30 years.
The parachutists were to have jumped as tandems, Nancy mayor Mathieu Klein told public broadcaster France Info.
Tandem jumps are skydiving experiences where two people, often an instructor and a novice jumper, are attached together for the descent.
The president of a regional association of care workers in Meurthe-et-Moselle, said some of the victims may have been self-employed care workers.
It appears that a trial skydive had been organised, with both care workers and instructors on board.
A resident, identified as John Curaku by BFM, told the broadcaster that he was in his garden when he heard what sounded like a plane's engine stopping, immediately followed by a bang.
He said he went to the crash site and "there were no signs of life," with two of the bodies thrown a few metres from the plane.
with AP
