Wairarapa district health board spokeswoman Jill Stringer said the 11 people died when the balloon came down near showgrounds north of the township of Carterton.
According to witnesses, the balloon, which had five couples and a pilot on board, burst into flames and plunged to the ground.
Reports on local radio suggested some of those on board tried to jump after the balloon burst into flames.
David McKinlay, who witnessed the accident, said: “I was watering the garden and heard a noise, the noise of the gas to raise the balloon. I looked over and I couldn’t believe it. One side of the basket was on fire.
“It was just above the trees when I first saw it… it looked like he [the pilot] tried to raise it a bit higher… all of a sudden there was just ten metres of flames,” he said. “It was like a rocket coming down – it was just unbelievable.”
The dark blue and maroon striped balloon was about 500 feet up and dropped quickly, turning to, “just a sheer flame as it hit the ground,” where “there was a big bang,” Mr McKinlay said.
Rosalee Thurston was in a car with her husband and daughter when they saw “a puff of smoke in the sky and then flames as the balloon fell to the earth”.
Another witness, who asked not to be named, said the balloon “clipped a power wire and tried to go up, then they’ve sort of gone across the road then it’s caught fire.”
Before the accident he had waved to the balloonists as they passed overhead.
“Then I heard the screams and looked out the window and heard it coming down… I heard them, they sounded like screams of joy but they weren’t,” he said.
“I ran down the road to see if I could help but by that stage it was too late. It was just burned out”.
The stricken balloon hit power lines as it fell, causing electricity cuts for about 20 minutes, officials said.
Police said they have no details yet of what caused the early-morning crash in clear, bright conditions with minimal wind. The region is well known for its hot air ballooning.
It believed the balloon was owned by Lance Hopping, of Ballooning NZ. It is not known if he was on board the flight.
Mr Hopping was the safety manager for the Balloons over Wairarapa festival, said event organiser Jonathan Hooker.
“He was very safety-conscious, a professional pilot,” Mr Hooker said. “It’s a very tight-knit community. All the balloonists know each other.”
Wellington District Commander Superintendent Mike Rusbatch said a disaster victim identification team was going to the scene to begin the process of identifying the bodies.
“This is an absolutely tragic incident and our thoughts are with the families of the deceased. We are in the process of notifying next of kin. However, we will not be releasing any names until all next of kin have been advised.
“We also have a number of police staff who are working with the families of the deceased to provide them with the support they need.”