A woman was killed in one of the houses hit and at least two people on the ground were injured, police said. Several houses became engulfed in flames after the plane exploded.
Television footage showed one charred body among the flaming debris as people tried to help firefighters put out the blaze, some dousing the fire with garden hoses and pails of water.
The cause of the crash was not immediately clear.
The pilot radioed soon after takeoff to say the plane had an emergency. It was heading back to the runway when it crashed, Civil Aviation Authority deputy director Ed Kapunan told DZBB radio.
The plane was acquired by the government from Australia in 1976. Three others still in service were grounded, pending results of an investigation, said air force spokesman Lt. Col. Gerardo Zamudio.
Among those killed in the crash was Maj. Gen. Butch Lacson, the air force commander in the southern Philippines, Zamudio said.
The plane had stopped in Cotabato on its way from Davao city to the southern city of Zamboanga, Ferrer said.
Cotabato Mayor Muslimin Sema said one firefighter also was injured.
