The national civil protection agency said the Hotel Rigopiano had suffered a direct hit by a two-metre high wall of snow yesterday.
Emergency services were struggling to get ambulances and excavation equipment to the remote site with the first snow plough only arriving just before midday.
Italian broadcasters showed images of piles of masonry and rubble inside the hotel, which had been moved some ten metres from its original location by the force of the snow.
Civil protection chief Fabrizio Curcio said there had been around 30 guests and staff at the small ski hotel on the eastern lower slopes of the Gran Sasso mountain when the first of four powerful tremors rattled the region on Wednesday morning.
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Francesco Provolo, the head of the Pescara province where the disaster occurred, said there had been around 20 people staying at the hotel, including "several children" along with seven or eight staff.
They were quoted as saying there were no signs of life inside the building while one of their commanding officers told reporters: "There are many dead."
Ambulances were blocked by two metres of snow in the nearest village, Farindola, some nine kilometres away, according to the civil protection agency.
Antonio Di Marco, president of Pescara province, said: "What is certain is that the building took a direct hit from the avalanche, to the point that it was moved by 10 metres."
One of the two survivors was helicoptered to a hospital in Pescara suffering from hypothermia but was not in a life-threatening condition.
Rai television reported that one of them had told rescuers that his wife and child were trapped in the hotel.
The region was hit by four seismic shocks measuring above five magnitude in the space of four hours on Wednesday, when at least one person was confirmed to have died.