US authorities are searching for the body of a third victim, with two people already confirmed killed when their hot-air balloon hit power lines and burst into flames in Virginia.

The balloon caught alight late on Friday and crashed near the state capital, Richmond, as it made its descent into a field.

“Full-scale searching for the third body and balloon wreckage began at 6.30am today,” Virginia State Police spokeswoman Corrine Geller said on Sunday.

The other two bodies were located about 1500 metres apart in a heavily wooded area.

Witnesses watched in horror as the balloon caught fire in the evening sky after hitting a power line while descending.

The burning balloon then surged back up, before plummeting again and smashing into the ground.

The rest of the two-day Mid-Atlantic Balloon Festival has been cancelled.