"It looks like there are no survivors," Air Marshal Agus Supriatna told Metro TV in the Sumatra city of Medan, adding that some of the 113 passengers were air force families.
The crash of the C-130B Hercules aircraft, which went into service half a century ago, is bound to put a fresh spotlight on Indonesia's woeful air safety record and its aging planes.
Officials said the plane plunged into a built-up area of the Sumatra city of Medan. Eye witnesses said it had appeared to explode shortly before it smashed into houses and a hotel.
Metro TV reported that 49 bodies had been brought to a nearby hospital. In the first hours after the crash officials had said that only a crew of 12 service personnel were on board.
Black smoke billowed from the wreckage and crowds of people milling around the area initially hampered emergency services rushing to the scene.
The Hercules transport plane was on its way from an air force base in Medan to Tanjung Pinang in Sumatra. Media said the pilot had asked to return because of technical problems.
"It passed overhead a few times, really low," said Elfrida Efi, a receptionist at the Golden Eleven Hotel.
"There was fire and black smoke. The third time it came by it crashed into the roof of the hotel and exploded straight away," she told Reuters by telephone.
Pressure to Modernize
According to the Aviation Safety Network, there have been 10 fatal crashes involving Indonesian military or police aircraft over the last decade. The accidents put under a spotlight the safety record of Indonesia's aviation and its aging aircraft.
AirAsia flight QZ8501 crashed less than halfway into a two-hour flight from Surabaya in Indonesia to Singapore last December. All 162 people on board the Airbus A320 were killed.
"It's too early to say what caused today's disaster, but it will again raise concerns about air safety in Indonesia, especially since it comes just half a year after the crash of QZ8501," said Greg Waldron, Asia Managing Editor at Flightglobal, an aviation industry data and news service.
The Indonesian air force has now lost four C-130s, reducing its transport reach in an archipelagic country that stretches more than 5,000 km from its western to eastern tips.
Air force spokesman Dwi Badarmanto said it was unclear what caused the crash and, until it was, eight other C-130Bs would be grounded.
Although Indonesia accounted for nearly one-fifth of defense spending by Southeast Asian countries last year, as a percentage of GDP it was the lowest in the region at 0.8 percent, according to Stockholm International Peace Research Institute data.
President Joko Widodo, who took office last year, has said he plans to double military spending to $15 billion by 2020.
However, the transport plane accident could bring pressure on the president to spend more on modernizing the air force.
"This incident shows us that we must renew our aircraft and our military equipment," Pramono Anung, a lawmaker and member of the parliamentary commission overseeing defense, told Reuters.
"The Hercules is already old, many of our other (weapons) systems are already old. As parliament we will support giving more funding to the military so that they can upgrade."