The wreckage was located about 100 miles (160 kilometers) east of the capital, the Rescue Coordination Committee at Katmandu Airport said. The bodies were flown to Katmandu by rescue helicopters.
Civil Aviation Minister Sharad Singh Bhandari said the government was investigating the crash.
"Our preliminary findings indicate that the plane's right wing clipped the edge of a mountain and the plane crashed after that," Bhandari said.
The aircraft had been chartered to carry pilgrims to a Hindu temple and was on its way back to the capital.
Debris from the plane was scattered over a 1,000-foot (300-meter) radius on the side of a mountain, police official Bhesh Bahadur Thapa said in a telephone interview from near the crash site.
The Canadian-built Twin Otter aircraft operated by domestic Tara Air took off Wednesday from Lamidanda, about 200 miles (320 kilometers) east of Katmandu, and then disappeared.
Airport official Dinesh Shrestha said three rescue aircraft including an army helicopter scoured the area Wednesday evening and early Thursday and located the crash site.
The three crew members were Nepali nationals. One of the passengers was a Tibetan holding a U.S. passport. Officials were trying to identify the remaining 18 passengers, but indicated many were believed to be Bhutanese nationals.
A team of Bhutanese officials arrived in Katmandu on Thursday and were trying to find out if their citizens were on the flight.
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