The balloon came burberry outlet 2012 down in calm weather near Carterton, a small town north of the capital Wellington and a popular area for ballooning, in New Zealand's worst aviation disaster in more than 30 years.
As the balloon was preparing to land, it hit power lines, causing sparking in the basket carrying the pilot and 10 passengers, police inspector Brent Register said.
"At this point, two of the 11 people onboard, believed to be a male and a female, appear to have jumped from the basket," he said.
Register said the balloon then made a sharp ascent, a fire ignited on board and the balloon plummeted into a paddock. There were no survivors.
The passengers were confirmed as five couples from the Wellington region.
Aurea Hickland, who lives next to the crash site, saw the accident happen as she was having breakfast. "It was terrible," she was quoted as saying by the New Zealand Herald.
"I said to my husband 'Oh no the basket's on fire, the basket's on fire'. We saw the two people jump and I said to Neil, 'They won't survive,' it was just awful.
"It shot up in the air, and everyone was screaming -- the screaming was just terrible -- and then when the canopy went up in flames it just dropped," she said.
"Neil ran out and then came back with two of the family members (waiting for the balloon to land) and one was saying that they had bought the tickets for their parents for Christmas.
"They just kept saying 'How are we going to tell our children?' "
Another witness, David McKinlay, told reporters Burberry men t-shirts, cheap burberry t-shirts for men 2012 outlet he looked up to see one side of the basket on fire and "all of a sudden there was just 10 metres of flames".
"It was like a rocket coming down; it was just unbelievable," he said.
McKinlay, who alerted the emergency services, said the balloon was about 150 metres up when it suddenly plummeted to the ground.
Jacqui O'Connor, a nurse holidaying in the area, made her way through fallen power lines to reach the two people who leaped from the basket. Their bodies lay about 100 metres from where the balloon crashed down.
It was New Zealand's worst aviation disaster since 1979, when an Air New Zealand jet crashed into Mount Erebus in Antarctica killing 257 people.
Police say they were alerted to the crash just before 7:30 am. Ballooning companies in Carterton, about 150 kilometres (95 miles) north of Wellington, recommend early morning flights.
Reporters at the scene said the crash site had been cordoned off and only emergency workers and the families of those on board the balloon were being allowed through.
The balloon was believed to have been owned by Ballooning New Zealand director Lance Hopping, who has more than 1,000 hours of commercial ballooning experience.
Transport Minister Gerry Brownlee said an investigation was under way to determine the cause of the crash and draw up recommendations to prevent a similar accident in future.
"We are deeply sorry to learn of this tragic burberry bags accident and our hearts go out to those who are now mourning the loss of life," Brownlee said.