Emergency was declared in all hospitals in Islamabad and Rawalpindi.
Family members of passengers gathered outside the Islamabad and Karachi airport.
This was Bhoja Airline's maiden flight.
The ministry of defence and President of Pakistan have confirmed the plane crash. But details are awaited.
Witnesses near the airport say emergency vehicles can be seen in the area.
The Dawn newspaper's website reports, quoting the Pakistan defence ministry, that at least 118 passengers are dead, Defence Ministry announced.
The Bhoja Airline plane crashed near the Chaklala airbase due to bad weather, the defence ministry said.
Though the defence ministry said 118 are feared dead, reports said that chances of anyone having survived the crash are remote.
High level investigations have been ordered to probe the crash.
Rescuers are trying to evacuate bodies from the area.
In July 2010, an Airbus 321 passenger jet had crashed due to bad weather into hills overlooking Islamabad. All 152 people on board were killed.
The aircraft which crashed was reportedly over 20 years old.
Reportedly, Bhoja Airlines had bought this very aircraft from Shaheen Airlines after it was scrapped by the latter for its compromised flight-worthiness.
Several houses were hit by the parts of the aircarft at the site where the plane crashed, however, no casualties have been declared on the ground.
Civil Aviation Authority said the flight was given clearance to land, but it lost contact with the control tower at 6:40 pm (Pakistan Standard Time).
The defence minister said there was a possibility that the plane may have burst into flames before it hit the ground.
Witness said they saw a fireball heading towards the village of crash, which could mean that the engine had caught fire.
"There is no chance of any survivors. It will be only a miracle. The plane is totally destroyed," AFP quoted police officer Fazle Akbar from the crash site, as saying.
Islamabad airport is in a chaos with people trying to find the names of their relatives on the list of deceased put up by the Bhoja Airline and a number of flights being cancelled.
The hunt for the black box is on, while the rescue team is trying to clear the debris.
Lack of electricity at the crash site is making rescue operations difficult, with the rescue officials using flash lights and mobile phone lights to search for the debris.
According to the Dawn, the Pakistan defence minister has confirmed that all 127 people are dead.
Television channels showed videos of a man saying that two of the passengers, Sajjad Rizvi and Sania Abbas, were newlyweds flying to Islamabad for their honeymoon.
A government investigation has blamed the pilot for veering off course in stormy weather.
Rescue operaters have been asking the localites to get blankets in order for them to gather the body parts.
According to the Dawn, the passenger plane of Bhoja Airline on Friday crashed near Chaklala airbase due to bad weather, killing all 127 people on-board, the Pakistan defence ministry announced.
All operations at the Benazir Bhutto International Airport have been called off.
Benazir Bhutto International Airport has been closed down till midnight. Unofficial reports claim the airport may be shut for the next two days.
Reports coming in say there are no casualties on ground.
The Pakistan defence minister said that the aircraft was at a very low altitude when it crashed.
Body parts lay among wreckage strewn in a small settlement just outside Islamabad.
Parts of the plane smashed into electricity poles, blanketing the area in darkness, reporters said.
Wreckage, including smashed seats, clothes and jewellery belonging to passengers, was spread out over two kilometres.
"We collected up small pieces of human flesh and bundled them in cloth sheets like we collect grain," AP quoted Islamabad police chief Bani Yameen, as saying.
Bhoja Air's Boeing 737 aircraft, which crashed in bad weather near Islamabad's Benazir Bhutto International Airport on Friday, was carrying 118 passengers and nine crew members, local television channels reported. They did not provide details on the crash site.
Pakistani aviation officials were not immediately available for comment.