The plane went into the sea in poor weather just short of the airstrip serving the small port town of Kaimana, in the eastern province of West Papua.
Fifteen bodies have been recovered by rescuers searching for survivors.
The Indonesian archipelago relies heavily on air transport and has one of Asia's worst air safety records.
"I can confirm that all the passengers were killed when the plane exploded as it crashed into the sea," the unnamed navy officer, who took part in the search and rescue operation, told ElShinta radio.
"The aircraft was smashed to pieces... We found 15 bodies floating on the water and the other passengers are trapped inside the wreckage."
Transport ministry official Bambang Ervan told AFP news agency there were 21 passengers and six crew on board the twin turbo-prop plane, operated by Merpati Airlines, which was flying from the coastal city of Sorong.
Indonesia has seen a number of commercial airline crashes in recent years.
In 2007, the European Union banned all of Indonesia's airlines including the national carrier Garuda.
In 2009, Garuda and three other carriers were taken off the EU's list, but Merpati Airlines remains on it.
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