US investigators say the basket portion of the balloon caught fire before the craft came down in a field near the city of Lockhart, about 30 miles (50 km) south of Austin.
Marcus Officer, a reporter for Newsium at the scene, said: “There are massive power lines that are above where police tape is marked off.
“We have not confirmed anything as to whether the power lines caused the fire and the crash. But there’s police tape just underneath it.”
It is believed the 16 people were on board for the hour-long flight arranged by the Heart of Texas Hot Air Balloon Rides company.
It is thought the flight encountered difficulties about halfway through the journey.
The company’s chief pilot, Skip Nichols, has been named as one of those who was killed in the crash.
A former girlfriend of Mr Nichols told the Austin Statesman news site he was highly experienced and took safety very seriously.
Wendy Bartch posted on Facebook: “Love you Skip. Forever… Rest in Peace my friend. You touched my heart.”
Margaret Wylie, an eyewitness who called 911 after the hot air balloon came down, described hearing popping sounds shortly before the craft was engulfed in flames.
She said: “I looked around and it was like a fireball going up.”
The accident is likely to be one of the deadliest hot air balloon crashes on record, and officials from the National Transportation Safety Board (NTSB) said there was a “significant loss of life”.
Three years ago, 19 people – many of them tourists – were killed after a hot air balloon came down after a mid-air explosion in Egypt.
The incident happened shortly after 7.40am local time (1.40pm UK time) on Saturday, and weather conditions were clear.
Investigators have sealed off the scene and officials are beginning to determine the exact number of victims and their identities.
Caldwell County Sheriff Daniel C. Law said the difficulties with identification stemmed from it being the kind of situation where people could walk up and buy a ticket, unlike an airplane, which would have a list of names.
The Federal Aviation Administration and the NTSB will be leading the investigation.
NTSB’s Erik Grosof said a full-bore investigation would begin on Sunday when more federal officials arrive.
Texas governor Greg Abbott said: “Our thoughts and prayers are with the victims and their families, as well as the Lockhart community.”