The hotel was located in Malviya Nagar in south Delhi, they said, a predominantly residential area popular with students and young professionals.
At least 40 people have been rescued so far, police said.
Television visuals showed a building on fire, smoke billowing out and charred exteriors as residents watched from a narrow lane nearby.
They also showed two people jumping from a higher floor of the building.
"There was reportedly a restaurant operating on the ground floor of the building ... it is most likely that the fire was connected to that restaurant," local administration official Jitendra Kumar told reporters.
Prime Minister Narendra Modi said the loss of lives was tragic and extended his heartfelt condolences to those who have lost their loved ones and wished a speedy recovery to the injured.
