Witnesses and state media said the Caspian Airlines plane was ablaze before plunging into the ground and exploding near a village northeast of Tehran shortly after taking off from the capital's international airport.
Television images showed a vast crater at the disaster site littered with debris of plane parts, shoes and clothes.
"All people aboard... the crashed plane are dead. The plane had 153 passengers and 15 crew members," said Mohammad Reza Montazer Khorasan, head of the health ministry's disaster management centre.
Among those on board the Tupolev were about 25 Armenians, according to an airline representative in Yerevan, while Iranian officials said they included 10 members of Iran's junior national judo team.
Caspian Airlines was established in 1992
"I saw the plane when it was just...above the ground. Its wheels were out and there was fire blazing from the lower parts," witness Ablolfazl Idaji said, according to the Fars news agency.
"It seemed the pilot was trying to land and moments later the plane hit the ground and broke into pieces that were scattered far and wide."
Iran's English-language Press TV quoted a witness from the site near the village of Janat Abad as saying that "the aircraft all of a sudden fell out of the sky and exploded on impact, where you see the crater."
Armenian television reported that the crash was caused by an engine fire.
About 30 relatives and friends of passengers gathered at Yerevan airport, many of them in tears, where teams were on hand to give assistance and information.
Iran's civil aviation spokesman Reza Jafarzadeh said the plane took off from Imam Khomeini international airport at 11:33 am (0703 GMT) but "16 minutes later it disappeared off the radar and then it crashed."
The twisted remains of the plane's tailfin
State television's website quoted Ahmad Momeni, managing director of Iran's airport authority, as saying that the last conversation between the pilot and the ground was "normal and did not indicate any technical glitch."
Ahmad Mousavi, secretary general of the Iranian Red Crescent, said: "The massive explosion caused severe burns. We were unable to do anything."
President Mahmoud Ahmadinejad has ordered a transport ministry probe into the disaster, the latest major air crash in six weeks.
Two weeks ago a Yemenia Airbus crashed in the Indian Ocean off the Comoros, killing 152 people, while on June 1 an Air France Airbus plunged into the Atlantic coast off Brazil killing 228.
Iran, which has been under years of international sanctions, has suffered a number of aviation disasters over the past decade but Wednesday's crash is the worst for many years.
In December 2005, a total of 108 people were killed when a Lockheed transport plane crashed into a foot of a high-rise housing block outside Tehran.
The plane had just taken off from Tehran airport
Twenty-nine people were killed in September 2006 when an airliner came off the runway after landing in the eastern city of Mashhad and burst into flames.
In November that year, a military plane crashed on takeoff at Tehran's Mehrabad airport, killing all 39 people on board, including 30 members of the elite Revolutionary Guards.
Iran's civil and military fleet is made up of ancient aircraft in very poor condition due to their age and lack of maintenance. The Iranian regime is barred by sanctions from buying American Boeing planes or European Airbus aircraft when they include a significant number of US parts.
Caspian Airlines was established in 1992. Its website said it operates more than 50 regular and numerous charter flights each week between Iranian cities and several Middle Eastern and Eastern European destinations.Onlookers gather at the crash site
The Islamic republic is home to hundreds of thousands of Armenians and a string of historically important churches of the country's Gregorian rite.
Landlocked Armenia has been seeking closer ties with Iran, triggering concern in Washington which called for Yerevan to join international sanctions aimed at persuading Iran to halt sensitive nuclear work.
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