"Soldiers have been dispatched to save the people buried in the collapsed houses," local official Huang Limin was quoted as saying by China's state news agency Xinhua.
One official told journalists more than 85% of buildings in Jiegu town near the epicentre had collapsed.
"The streets in Jiegu are thronged with panic - injured people, with many bleeding in the head," Zhuo Huaxia told Xinhua.
"Many students are buried under the debris due to building collapse at a vocational school.
"I can see injured people everywhere. The biggest problem now is that we lack tents, we lack medical equipment, medicine and medical workers."
Many of the buildings in Yushu, a county with a largely Tibetan population of about 80,000, were thought to be made from wood.
In 2008, a huge quake struck neighbouring Sichuan province which left 87,000 people dead or missing.
Karsum Nyima, from Yushu county's TV station, told China's state-run CCTV that school students had been assembled in outside playgrounds, although school buildings had not collapsed.
Michael Bristow, BBC News, Beijing
The earthquake struck just before 0800 local time - when many people were still at home. It was followed by three aftershocks.
Some media reports say most buildings in the town near the epicentre fell down. Grainy pictures on Chinese television showed rescuers pulling at the rubble of one collapsed structure. Soldiers have been sent to the area to help with the rescue.
The earthquake happened in a remote and sparsely populated area on the Tibetan plateau. The area is regularly hit by earthquakes.
"In a flash, the houses went down. It was a terrible earthquake. In a small park, there is a Buddhist tower and the top of the tower fell off," he said.
"Everybody is out on the streets, standing in front of their houses, trying to find their family members."
Zhuo De, an ethnic Tibetan resident of Yushu, who spoke by phone from the capital of Qinghai province, Xining, said there could be many more casualties.
"The homes are built with thick walls and are strong, but if they collapsed they could hurt many people inside," he said.
The remote high-altitude region is prone to earthquakes, but officials from the US Geological Survey said this was the strongest quake within 100km of the area since 1976.
Residents of Yushu fled their homes after the quake
The region, which is home to ethnic Mongolians and Tibetan farmers and herdsmen, is dotted with coal, tin, lead and copper mines.
After the Sichuan quake, five million people were left homeless, and officials estimated rebuilding work would take at least three years.
The government later punished people who had compiled lists of the victims and had suggested shoddy school-building was partly to blame for the high death toll.
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