Footage shared by local news outlet G1 showed billows of smoke coming from the balloon, which was in flames as it hurtled toward the ground in the municipality of Praia Grande.
A video on social media shows two people falling through the air as the fire spread onboard the aircraft.
Thirteen survivors were transported to nearby hospitals, according to the fire department.
Footage shared by local news outlet G1 showed billows of smoke coming from the balloon in flames as it hurtled towards the ground.
The crash happened about 8am Saturday local time, military firefighter Zevir Cipriano said.
A fire started in the basket, prompting the pilot to try to land the balloon.
Thirteen people, including the pilot, managed to jump out but eight were unable to. Without the weight of the others, the balloon began rising again.
"These people ended up dying - four charred and another four jumped out of the balloon when it was falling," Cipriano Jr said.
Three people died hugging each other, said Ulisses Gabriel, chief of Santa Catarina's civil police force, on X.
"It hurts the soul."
"We are in mourning. A tragedy has happened. We will see how it unfolds, what happened, why it happened. But the important thing now is for the state structure to do what it can," Governor Jorginho Mello said in a video on X.
Brazil's President Luiz Inacio Lula da Silva expressed his solidarity with victims' families and said he was placing the federal government at the disposal of victims and local authorities.
Mello said he had asked authorities to head to the municipality "to do as much as possible to rescue, to help, to take to hospital, to comfort the families".
The balloon's expected flight time was 45 minutes, G1 said, with the balloon reaching 1000 metres and cost 550 reais (about $A150) per passenger.
Sobrevoar, the company responsible for the multi-coloured balloon, said it complied with all regulations and had a clean accident record before Saturday.
Praia Grande is a common destination for hot air ballooning, a popular activity in some parts of Brazil's south during June festivities that celebrate Catholic saints such as Saint John.
Last Sunday, a balloon fell in Sao Paulo state, killing a 27-year-old woman and injuring 11 others, G1 reported.
with AP
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