Witnesses said the 22-year-old Russian-made aircraft, which had 153 passengers and 15 crew, nose-dived from the sky with its tail on fire.
Flight 7908 crashed 16 minutes after take-off from Imam Khomeini International Airport in Tehran, officials said.
Iranian President Mahmoud Ahmadinejad offered his condolences to the bereaved families and ordered a transport ministry investigation into the tragedy.
'Heads, fingers, passports'
Farsi Majidi, head of the investigating committee, told Associated Press TV News: "Thank God, we succeeded in finding two of the three flight data recorders or black boxes.
Jon Leyne, BBC News
Iran has a notoriously bad air safety record. Because of sanctions imposed by the United States, Iran relies on an increasingly ageing fleet of airliners, and has trouble buying spares.
There are tales of aircrew buying spare parts on flights to Europe, then sneaking them back to Iran in the cockpit. While those sanctions don't apply to aircraft from Russia and Ukraine, many planes from those countries in the Iranian fleet also appear well past their best.
For some people, flying in Iran can be a nerve-wracking experience. Stepping on board, it often becomes quickly apparent you are in a plane that has done many years service.
There are also frequent delays because of the shortage of aircraft. Iranian engineers and aircrew do their best to keep their fleets in service.
"Although they are damaged we are hopeful that we can extract information from them."
Eight members of Iran's national junior judo team and two coaches were on the flight, heading for training with the Armenian team.
Among the mainly Iranian passengers were about five Armenian citizens and two Georgians.
Search teams picked through an area 200m (660ft) wide in a field at Jannatabad village, where the plane gouged out a huge smoking crater.
A relief worker, standing next to a body bag of human flesh, told AFP news agency: "There is not a single piece which can be identified."
Mostafa Babashahverdi, a local farmer, told Reuters news agency: "We found severed heads, fingers and passports of the passengers."
Witnesses said the Tu-154 had circled briefly looking for an emergency landing site. One man described it exploding on impact.
"I saw the plane crashing nose-down. It hit the ground causing a big explosion. The impact shook the ground like an earthquake," Ali Akbar Hashemi told AP news agency.
IRANIAN PLANE CRASHES
Feb 2006: Tupolev crashes in Tehran, kills 29 people
Dec 2005: C-130 military plane crashes near Tehran, kills 110
Feb 2003: Iranian military plane crashes, kills all 276 on board
Feb 2002: Tupolev crashes in west Iran, kills all 199 on board
At Yerevan's airport, one woman wept as she said her sister and two nephews, aged six and 11, had been on the flight.
"What will I do without them?" said Tina Karapetian, 45, before collapsing.
It was the third deadly crash of a Tupolev Tu-154 in Iran since 2002.
The BBC's Jon Leyne says Iran's civil and military air fleets are made up of elderly aircraft, in poor condition due to their age and lack of maintenance.
Since the Islamic revolution of 1979, trade embargoes by Western nations have forced Iran to buy mainly Russian-built planes to supplement an existing fleet of Boeings and other American and European models.
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