UPDATED 5.13PM Catastrophic engine failure just after take-off may have caused a charter plane carrying five people to crash into a Melbourne retail outlet and explode, police believe.

LISTEN ABOVE: Australian correspondent Katherine Firkin spoke with Larry Williams

The crash is the state of Victoria's worst air disaster in 30 years.

Five people were on the Beechcraft Super King Air twin-engine which hit DFO Essendon about 9am on Tuesday after departing nearby Essendon Airport for King Island.

Superintendent Mick Frewen said there was a Mayday call, followed by possible catastrophic engine failure.

"But we are unsure at this stage," he said on Tuesday.

Australian correspondent Katherine Firkin told Larry Williams it didn't take long for the plane to go down...

"Just minutes after taking off they suffered this catastrophic failure and clearly an experience pilot, as this person was, has not been able to manage it."

The Victorian Fire Service says the amount of aviation fuel still in the tank makes for a long and tough firefight.

Ms Firkin told Larry Williams the crash has closed the major Tullamarine freeway.

"In the process of the crash, part of the plane -- the landing gear -- had come tumbling off and a wheel actually landed on the freeway and hit a taxi. Thankfully that didn't cause major damage."

But she said the plane mostly avoided the busy freeway, and the store it crashed into hadn't opened yet.

It's unclear if workers were inside the shops, which were due to open at 10am.

The plane was carrying a golfing party bound for King Island links, The Advocate newspaper in Tasmania reported.

 

The damaged area of the DFO was still smoking and plane debris littered the ground and the nearby freeway.

Ash Mayer, a storeman at The Good Guys, felt the crash reverberate through the building.

"We were just coming off the off-ramp, we felt just everything shake and a massive explosion and a fireball go up," he told AAP.

"We just knew this was bad and there was nothing we could do.

"One of the boys actually saw it go down and he's now left because he can't deal with it."

Witness Carmel Brown told AAP there was a huge explosion.

"There was a big crash and then a big red fireball, like a mushroom," she said.

Thick black smoke from the crash could be seen across Melbourne.

Workers at the Spotlight store were visibly in shock, a some were crying as they hugged each other outside the store.

Radio caller Jason was in a taxi when he saw the massive fireball.

"I could feel the heat through the window of the taxi, and then a wheel - it looked like a plane wheel - bounced on the road and hit the front of the taxi as we were driving along," he told ABC 774.

The nearby Tullamarine and Calder freeways remain closed and a large exclusion zone has been set up around DFO Essendon.

Outlet operator Vicinity Centres confirmed the plane had crashed into the rear of the Homemaker Centre at the Essendon building.

The outlet has been closed for the day and won't reopen until Wednesday.

The Australian Transport Safety Bureau will take over responsibility for the investigation on Tuesday afternoon.

Federal Opposition Leader Bill Shorten tweeted the scenes from Essendon were "horrific".

"Hard to fathom (how) such an ordinary morning could turn so tragic," he said.

Meanwhile, access to the Essendon Airport website has been disrupted with the site continuing to crash intermittently.