Many people are feared trapped in the debris.
Locals say that the building was over 50 years old and already in a run-down condition and housed the MS Hotel.
The building, which hosts a hotel and lodge, collapsed around 9:20 p.m., following which police personnel were deployed for rescue operations.
Madhya Pradesh Chief Minister Shivraj Singh Chouhan on Sunday announced ex-gratia of Rs two lakh each for the next kin of those killed in the Indore building collapse.
According to eye-witnesses, a vehicle hit one of the pillars of the building at around 9.30 pm and the entire structure came crumbling down.More news: Tim Cook says Facebook needs to be regulated
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Building collapses are common in India as builders try to cut corners by using substandard materials, and as multi-story structures are erected with inadequate supervision.
The civic body was trying to find out as to how much illegal construction had been done in the premises by its owner, said Mr Singh.
Collector, Nishant Warwade, has ordered a detailed inquiry into the incident and said an additional district magistrate rank official will head the probe team. He also said that two buildings adjoining the hotel also suffered damage and their residents were evacuated as a precautionary measure. Earlier in the day, Chouhan said he was keeping a close watch on the rescue operations.
However, it was not yet clear as to how many people were present in the hotel at the time of the mishap, he said.