The strong quake hit at 4:30 pm Beijing time (0830 GMT) at a depth of 12 kms with the epicentre in Longtoushan township, 23 kms southwest of the county seat of Ludian, Zhaotong City.
More than 120 residents were killed, over 180 were missing and 1,300 injured in Ludian County, according to the local government. It said more than 12,000 houses were toppled and 30,000 damaged.
Transportation, electricity and telecommunications have been cut off in the county.
Ma Hao, a college student who is volunteering for the rescue at Longtoushan Township, told Xinhua that he saw bodies buried in ruins and helped to carry more than 40 injured people out of the collapsed buildings.
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"Honestly, it's such a shame that we had no time to take care of the bodies. We need to help those alive first," he said.
"I felt a strong jolt on my fifth-floor home and some small objects in my home fell off the shelves," said a resident in the county seat of Ludian.
Electricity was cut, telecommunications services were affected and it was hard to reach people in Ludian by mobile phone, the resident said.
Another resident said it felt like "sailing a boat" when he was driving a car in the tremor.
Ma Liya, a resident in the county seat, told Xinhua via telephone that the streets were like a "battlefield after bombardment".
She added that the house of her neighbour, a new two-storey building, was toppled.
"It's so terrible. The aftermath is much much worse than what happened after the quake two years ago. I have never felt so strong tremors before. What I can see are all ruins," she said.