The Spanair flight had just taken off for the Canary Islands, at about 1430 local time (1230 GMT). It is thought that the left engine caught fire.
Helicopters were called in to dump water onto the plane. More than 70 ambulances were seen leaving the scene.
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TV footage showed several people being carried away on stretchers.
The BBC's Steve Kingstone, in Madrid, said a grim line of emergency vehicles obscured the view of the crash scene.
"We heard a big crash. So we stopped and we saw a lot of smoke," he said.
Mr Moleno said he had seen as many as 20 people walking away from the wreckage.
A British man who witnessed the aftermath of the accident, Alan Gemmell, told the BBC: "The whole back end of the plane was just burnt to a crisp."
Safety record
Spanair flight JK 5022, bound for Las Palmas in the Canary Islands, came down during or shortly after take-off from Terminal Four at Barajas.
TV footage showed the plane had come to rest in a field.
SPAIN'S WORST CRASHES 27 March 1977 583 people die in Los Rodeos, Tenerife, after two Boeing 747s collide - one Pan Am, one KLM. 23 April 1980 146 people die near Los Rodeos, Tenerife, as a Dan Air Boeing 727 crashes while attempting to land. 27 November 1983 181 people die, 11 survive, as an Avianca Boeing 747 crashes in the village of Mejorada del Campo, near Madrid, on its way to Barajas aiport. 19 February 1985 148 die when an Iberia Boeing 727 crashes into a TV mast near Bilbao. |
Spanair's parent company, Scandinavian firm SAS, said the accident happened at 1423.
According to Spain's airport authority, Aena, the plane had been due to take off at 1300 local time.
No details of the nationalities of the passengers on board have yet been released.
A local emergency service official, Ervigio Corral, told Efe news agency that there were many children among the victims.
The plane was a codeshare flight with German airline Lufthansa, which said it was investigating whether German passengers were on board.
Spanish Prime Minister Jose Luis Zapatero was on his way to the scene after cutting short his holiday, his office said.
The aircraft was a MD82, a plane commonly used on short trips around Europe, aviation expert Chris Yates told the BBC.
He said Spanair had a very good safety record.
Reports say it was the first crash at Barajas airport, some 13km (8 miles) from central Madrid, since 1983.
People concerned for relatives or friends who might have been on board the plane can call Spanair's helpline on +34 800 400 200 (from inside Spain only).
Passengers 150-170 Cruise speed 504mph (811km/h) Length 45.1m (148ft) | Height 9m (29.5ft) Wing-span 32.8m (107.6ft) Maximum range 2,052 nautical miles (3,798km) |
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