The cause of the fire was not known immediately but officials hinted at a short circuit. Some were injured and have been taken to hospital.
The four-storey hotel, which had 35 rooms, was completely booked by a family which was in Delhi for a function, informed Delhi Fire Services chief Atul Garg.
While numerous victims were charred to death or suffocated in the poisonous fumes, at least three people were killed when they reportedly jumped off the building in desperate attempts to escape the blaze. Most people jumped out of the upper floors of the hotel to save their lives. It is estimated some 120 people were inside the building, built around 25 years ago, according to the hotel's website. "Mishappening can occur in a house as well", Delhi Hotel Association vice president Balan Mani said, according to ANI, adding, "It was due to fire in ducting because of which it had spread to the hotel rooms".
"There was wooden panelling on corridors because of which people could not use corridors to evacuate", another fire officer told reporters.
Karol Bagh, in central Delhi, is popular with tourists and lined with hotels and markets.
But the city is rapidly growing - with more than 18 million people now crowded into the Indian capital - and building violations are nearly impossible to stop.
The fire has already raised questions about safety in poorly regulated budget hotels in the country.
Many structures, both old and new, lack proper fire exits.
"People have to come out of the room and take the staircase but the staircase itself was on fire, so how they will go out?"
"When the fire tenders reached the spot, flames were leaping out of the building".
Prime Minister Narendra Modi said in a tweet that he was deeply saddened by the loss of lives.