"SpaceShipTwo has experienced an in-flight anomaly. Additional info and statement forthcoming," Xinhua quoted Virgin as saying on Twitter, giving no further details.
Two pilots were on board when the catastrophic explosion and crash happened. After the anomaly, at least one chute was reportedly sighted over the Mojave Air and Space Port in California, the base from which SpaceShipTwo and its WhiteKnightTwo carrier plane took off.
Media reported that one pilot was killed and the other seriously injured.
The craft, which is still in its test phase and normally carries two pilots, had been carried aloft on a bigger aircraft known as WhiteKnightTwo and then released for a test of its rocket engine.
SpaceShipTwo is designed to carry two pilots and six passengers on suborbital spaceflights. Tickets to ride the spaceship cost $250,000 each.
The suborbital flight has been under development at Mojave Air and Spaceport in the desert northeast of Los Angeles.