More than 100 labourers were working on the construction site when the chimney fell, R.K. Vij, a Chhattisgarh state police spokesman, told the AFP news agency.
"There is chaos at the plant. Labourers are helping the rescue team to pull people out of the debris," Vij said.
Family members waited anxiously for news of relatives as rescue workers searched for survivors.
"Seven injured people have been brought to hospital," said B.K. Srivastava, Balco's general manager.
"A chimney of 275 metres was being constructed, 100 metres were already completed. There was heavy rain and lightning when the incident occurred," Srivastava said.
Raman Singh, Chhattisgarh's chief minister, said a judical probe had been ordered into the accident.
Balco is a 51 percent-owned unit of London stock exchange-listed Vedanta Plc, whose activities are mainly focused on India.
The Indian government holds the remaining 49 per cent.