Provincial governor Peter Ipatas told AFP that "there has been a big landslide causing loss of life and property".
He later said "six villages" had been affected and described it as an "unprecedented natural disaster".
Three bodies have so far been recovered, but there are fears that hundreds more may be entombed. The true toll may take days or weeks to become clear.
Steven Kandai, a community leader at the scene, told AFP that many residents had no time to flee.
"All of a sudden there was a big landslip. The mountain just collapsed all of a sudden while people were still sleeping," he said, adding their homes were "completely buried".
Others "heard a huge sound from rocks falling down and then escaped. But some went to escape, on their way they were killed by falling trees, rolling rocks", he said.
Images showed a scene of total devastation, with a vast bite of earth cleaved from densely vegetated Mount Mungalo.
The landslide left car-size boulders, felled trees and dirt that stretched down toward the valley floor.
The twisted remains of corrugated tin shelters and an overturned minibus could be seen at the foot of rubble.
Dozens of local men and women scrambled over the piles of rock and soil, digging, crying out, listening for survivors or scanning the scene in disbelief.
Some became rescuers, donning boots, strapping on head torches, picking up machetes and long-handled axes to help clear the rubble.
Children could be heard crying as their mothers clambered over the rocks in search of loved ones.
President Joe Biden said he was "heartbroken by the loss of life and devastation", adding the United States stood "ready to assist" in recovery efforts with partners including Australia and New Zealand.
- Unknown toll -
Near dusk on Friday, rescuers were using a mechanical digger and hand tools to try to unearth survivors.
A rapid response team of medics, military, police, engineers and UN agency personnel has been dispatched to the area.
Prime Minister James Marape said the team would help with "relief work, (the) recovery of bodies, and reconstruction of infrastructure."
"I extend my heartfelt condolences to the families of those who lost their lives" he said.
Vincent Pyati, president of the local Community Development Association, told AFP the "landslide hit around 03:00 am last night and it looks like more than 100 houses got buried."
"It is not yet known how many people were in those houses. The number of victims is unknown."
Nickson Pakea, president of the nearby Porgera Chamber of Commerce and Industry, said there are fears that up to 300 people may have been there at the time, a number that could not be confirmed.
Aid agencies including the Papua New Guinea Red Cross and CARE said they were on standby.
Red Cross PNG interim secretary general Janet Philemon told AFP the landslide location was remote and that it could take up to two days for emergency services or aid to reach the area.
The nearest highway, which runs to the gold mining town of Porgera, was blocked, complicating relief efforts.
Papua New Guinea's National Disaster Management Office did not immediately give a toll.
The Red Cross estimates the number of injured or dead could be between 100 and 500. But Philemon said she was "trying to get a clearer picture of what the situation is."
The agency was ready to offer first aid, blankets and non-food items to those affected.
"There is no indication of an earthquake or anything that may have triggered (this event). It is a gold mining area and people may have been gold mining on that mountain," she said.
Otherwise, the landslide may have been caused by heavy rain, Philemon suggested.
Sitting just south of the equator, the area gets frequent heavy rains.
This year has seen intense rainfall and flooding.
Community leader Kandai said villagers had been fearful since a smaller landslide struck the same area earlier this year but "they don't have any place to move to".
In March, at least 23 people were killed by a landslide in a nearby province.
