Authorities had not yet determined the nationalities of the dead, but most appeared to be locals, said conservationist Bishnu Paudel, who described how people had fled to the hills to escape the sudden deluge.
Fast-flowing floodwaters from the swollen Seti River smashed into two buildings and a number of shacks in Kharapani village, in the shadow of Mount Annapurna.
"We have found the dead bodies of eight people at the Seti River. Some others, including three Russians, are missing," local police officer Shailesh Thapa said.
Paudel, of Annapurna Conservation Area Project, who reached the site a few hours after the flood hit, said: "Most of the victims were shopkeepers in Kharapani, on the banks of the Seti River.
"Another village, Machhapuchre, was also affected."
"Two buildings were swept away. Tourists flock to this area because there is a hot-water spring. There hasn't been any rain recently, so we were surprised when the flood occurred at 9:30am.
"The water has risen so high that it was up to a bridge. I found two truck drivers who had survived by fleeing to a hill nearby."
Three injured people have been taken to hospital in Pokhara, a tourist hub about 200 kilometres west of the capital Kathmandu, police said.
"Prime minister Baburam Bhattarai has ordered the authorities to conduct the rescue operation without any delay," the premier's spokesman Bishwadeep Pandey said.
"Bhattarai is monitoring the incident and is in touch with the authorities in Pokhara. An army helicopter with experts has also been despatched as per his request."
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