At least six Britons are thought to have been aboard the Malaysia Airlines Boeing 777 from Amsterdam to Kuala Lumpur when it was brought down by a surface-to- air missile in an area under the control of pro-Russian groups.
Harrowing images showed bodies scattered around the burning wreckage in a crash site littered with debris including passports and personal items.
There were no signs of survivors at the scene, close to the village of Hrabove, and more than 100 bodies have been recovered.
Reports suggested the rescue effort was being hampered by armed rebels. But separatists later agreed a truce could be called for several days to allow an investigation to take place.
The incident comes just months after another Malaysia Airlines plane carrying 239 people disappeared en route from Kuala Lumpur to Beijing. It has yet to be found.
Malaysian Prime Minister Najib Razak told a press conference no stone would be left unturned in trying to find out what happened.
"If it transpires that the plane was shot down, we insist the perpetrators be swiftly brought to justice," he said. "This is a tragic day in what has already been a tragic year for Malaysia."
Mr Razak said he had spoken to Ukrainian President Petro Poroshenko, who said he would negotiate with rebels to establish a humanitarian corridor to the crash site.
He called the downing of the plane an act of terrorism.
As details of the crash emerged, major airlines, including Virgin, Lufthansa and Air France, rerouted their flights to avoid eastern Ukraine before the airspace was completely closed off.
Prime Minister David Cameron said he was shocked and saddened by the disaster, and an emergency meeting was called at Whitehall. Mr Cameron also requested an urgent meeting of the United Nations Security Council.
US President Barack Obama said the crash was a terrible tragedy and offered US assistance to determine what happened.
It is believed 23 Americans were on board the Boeing 777.
Authorities in the Netherlands said at least six of those on board were British. The others included 154 from the Netherlands, 27 Australians, 23 Malaysians, 11 Indonesians, four Germans and four Belgians. There were also three people from the Philippines and one Canadian on the flight.
The Foreign Office could not confirm the British death toll, but said it was urgently working to establish what had happened.
Malaysian Airlines said air traffic controllers lost contact with flight MH17 at 2.15pm UK time as it flew over eastern Ukraine towards the Russian border, with 280 passengers and 15 crew aboard.
A local man who witnessed the crash said: "I was working in the field on my tractor when I heard the sound of a plane and then a bang. Then I saw the plane hit the ground and break in two."
With debris spread over nine miles, emergency workers were also scouring the area for black box flight recorders.
Pro-Russian rebels denied carrying out the attack, but are believed to have shot down two Ukrainian military planes over the region in recent days. A Tweet by rebel commander Igor Stelkov, which was later deleted, boasted about shooting down a military plane shortly before MH17 was downed. He wrote: "We warned you - do not fly in 'our sky'."
However, separatist leader Alexander Borodai accused the Ukrainian Government of shooting down the plane, saying: "Apparently, it's a passenger airliner indeed, truly shot down by the Ukrainian air force."
As details of the crash emerged, Russian President Vladimir Putin and Mr Obama were discussing a new round of economic sanctions that Washington and its EU partners imposed on Moscow on Wednesday to try to force Mr Putin to do more to curb the revolt against the Western-backed government in Kiev.
Mr Obama warned of further sanctions if Moscow did not change course in Ukraine.
l Scot Barry Sim was supposed to be on the flight with his wife Izzy, but the couple were forced to change flight because there were not enough seats on the plane.
He said he felt sick when news of the disaster broke.
Helplines have been set up. Text MH17 to +44 7860010026, call 020 7008 1500 or visit https://overseas-crisis.service.gov.uk. Malaysian Airlines has set up an emergency line: 006 037 884 1234.