The area has been cordoned off by police and investigators are inspecting the charred remains of the balloon.
Egypt's civil aviation minister has reportedly flown to Luxor to head the investigation into the crash.
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Balloons were grounded for six months after that crash while safety measures were tightened up and pilots re-trained.
But, says the BBC's Aleem Maqbool in Cairo, since the 2011 revolution that toppled President Hosni Mubarak, the rule of law is not being respected in many aspects of Egyptian life, so it has been difficult for the tourism ministry to impose its authority on sites like this.
Luxor, like many other parts of Egypt, has seen a sharp downturn in visitor numbers during the two years since the uprising.
"For the safety of the tourists and the Egyptians I have ordered all the companies dealing with balloons to stop flights until we know exactly what happened and the reasons for it.