Initial reports said that all of the 48 passengers and crew had been killed, but state media later reported that some passengers had been injured and transferred to hospital.
Islamic Republic News Agency (IRNA) said eight or nine people had survived and quoted a doctor who said one of the injured had regained consciousness.
Iran's airlines have been plagued by crashes, which Iranian politicians blame on international sanctions that stop the airlines replacing their ageing fleets. About 14 crashes involving Iranian planes were reported in the decade to January 2011.
President Hassan Rouhani ordered a halt to all flights of the Iran-140 pending a full investigation, IRNA said.
The pilot detected technical issues four minutes after take-off and tried to return to the airport, state television said, but the twin-engine turboprop crashed on a road at 9.18am local time. One eyewitness said the plane crashed into a wall.
State television said 37 people died instantly, two on the way to hospital.
The Iranian civil aviation authority said the passengers included two infants and three children under the age of 12. Mashallah Shakibi, 63, a former member of parliament from Tabas was among the fatalities, according to reports.
One survivor said he had jumped through a hole in the plane's body created by a blast. "The force of the blast threw us out of the plane," Mohammad Abedzadeh told a website. "Seconds later, I saw the entire plane in flames."