Tunguraua is located 135 kilometres (83 miles) south of Quito and is referred to by locals as ‘Mama’.
The volcano erupted violently before dawn following a 4.4-magnitude earthquake that struck an area to its southeast.
Molten lava and ash was spewed nearly 10 kilometres into the air.
It was Tungaraua's biggest eruption in seven years and a state of emergency has been declared in four affected provinces.
Among the worst hit was the province of Penipe where Mayor Juan Salazar says everything was knocked down.
Mayor Salazar said the powerful explosion produced glowing rocks, ash and lava which sparked a fire that lasted 18 hours.
About 3,200 people local residents were evacuated from their homes at the foot of the volcano.
Helicopters have had a difficult task reaching affected villages as they were blocked by thick ash in the sky around Tungaraua.
Local authorities say they have not been able to recover the bodies of four people who were buried under the debris.
About 13 people have been injured and five of them have first or second degree burns.
But a military rescue team has found 60 people who had been missing, Mayor Salazar said.
About 60 percent of the 15,000 people living in the tourist town of Banos took refuge in nearby hotels, according to local authorities.
About 20,000 hectares (50,000 acres) of farmland have been destroyed and thousands of cattle were killed.
Rocks up to 10 centimetres (four inches) large rained down on homes, piercing roofs and windows, witnesses said.
"The noise they made as they fell was thunderous," said Wilson Perez, a Cusua community leader.
"Several people were hit in the head, leaving them dazed."
Airports announced closures in nearby Riobamba, Latatunga and Guayaquil, Ecuador's most-populous city, due to airborne ash.
President visits disaster zone
After declaring a state of emergency, President Alfredo Palacio made his way to Penipe along with several ministers.
They were forced to travel by land as the smoke prevented them from flying into the region.
Geophysicists say the eruption of Tungarahua is a national disaster.
They say it is the strongest since 1999 and larger than a July 14 eruption that destroyed 20,000 ha (50,000 acres) of farmland.
That explosion left 10,000 people homeless, Quito University's Geophysical Institute said.
Mr Yepez is concerned the volcano’s behavior resembles that of a huge eruption in 1918, which was the biggest of the 20th century.
"We can't say whether this is the last eruption," said institute director Hugo Yepez.