The rocket called the Geosynchronous Satellite Launch Vehicle (GSLV) blasted off at 1205 GMT from an island off the coast of the south-eastern state of Andhra Pradesh, cartwheeled and disintegrated seconds later in clear view.
"A mishap happened in the first stage of the separation and it will be some time before we know what went wrong," Madhavan Nair, Indian Space Research Organisation (ISRO) chairman, told reporters at the launch site.
Disaster struck ISRO less than a day after an unsuccessful test flight of India's Agni-III nuclear-capable missile which has a range of 4,000 kilometres (2,480 miles) and designed to arm New Delhi with a ballistic weapon.
The 49-metre (161-foot) GSLV carried a 2,168-kilogram (2.4 ton) satellite to be put into stationary orbit at 36,000 kilometres (22,320 miles) and programmed to boost television services for the next 10 years.
It was launched from the Satish Dhawan Space Centre at Sriharikota in the Bay of Bengal. A similar GSLV successfully placed a satellite in orbit in 2004.
Indian scientists citing preliminary data blamed snags in the separation process in both the two-stage Agni (Fire) and the three-stage GSLV as the cause for their failures.
Experts also described the unsuccessful launch as a temporary setback.
"I would describe it as a setback but not a show-stopper," said K. Santhanam, a former chief advisor of the Defence Research and Development Organisation (DRDO), which is developing the Agni missiles.
"Such high-technology systems do take a little time to mature ... and such mishaps are not unknown in space history," Santhanam told CNN-IBN television.
Uday Bhaskar, deputy director of the state-funded Institute of Defence Studies and Analysis, said the GSLV's failure should not be viewed as the end of road for ISRO's space programme.
"There has been a setback but the scale of the setback should be placed in context because countries before India who have embarked upon satellite launch business too have gone through a similar learning curve," he said.
U.R. Rao, former chief of the Space Commission, which formulates guidelines and policies to promote development and application of space science, said it was a "mishap" not a setback.
"We will come to know the problem in the next few days. The amount (33 million dollars for the launch) is small compared to other nation's budget," he told AFP.
Monday's ill-fated launch of the GSLV, which includes Russian-made cryogenic control systems with locally-built equipment, was an attempt to increase its capacity beyond four tons.
K.R. Sridhara Murthi, executive director of Antrix Corporation, the commercial arm of the Department of Space, said Sunday his outfit wanted "one or more successful launch of the rocket" before offering launch services.
"Only then we can go in for more vigorous marketing," Murthi told AFP of India's ambition to capture part of the global launch market.
India has plans to invest 542 million dollars to handle up to four launch services for satellites a year.
India has nine other communication satellites with a total of 175 transponders in operation, making it the largest domestic communication satellite system in the Asia-Pacific and the world's biggest civilian cluster of remote-sensing satellites.
India first tried to launch a satellite-capable rocket on March 24, 1987. The attempt failed.
A second attempt ended with the payload falling into the Bay of Bengal on July 13, 1988, when the vehicle became unstable and broke up soon after release of the booster rockets.
A launch on May 20, 1992 placed a satellite in orbit, but lower than planned, resulting in reduced performance.