Firefighters, paramedics and police attended the scene but were unable to save the male pilot.
West Mercia Police said: “At 6.20am this morning, police received a call that a hot air balloon had deflated and had fallen to the ground near the A449 near Ombersley.
“The balloon fell into a field off Holt Fleet Road, near Ombersley Court. Emergency services arrived at the scene and unfortunately a man died by paramedics.
Onlookers described hearing “screams” coming from the balloon as it fell.
‘My wife heard terrible screaming’
One of them said: “There were a lot of balloons in the sky because it was clear and sunny, despite it being so early.
“Suddenly there was a flash and what looked like a ball of fire coming out of a blue balloon and it just fell like a rock. My wife heard terrible screaming and then silence.
“We called emergency services but struggled to reach the 999 number as it was off the air. We finally got through it, but it was just too high for anyone to survive. It was horrible to see.”
A man driving the A449 from Kidderminster to Worcester at 6.15am said: “I told my partner to take a picture because the balloons looked beautiful. Seconds later, one of them caught fire.
“Once it caught fire it went up like tissue paper, it burned in about 10 seconds. We couldn’t believe it.
“We thought that from that height there would certainly be a fatality. It dropped like a rocket and shook us awake to see.”
An investigation will now be conducted by the Air Accidents Investigation Branch.
The latest fatal crash is believed to have involved Lee Pibworth and Allan Burnett, both from Bristol, who died when their balloon crashed in Midsomer Norton, Somerset, on January 1, 2011.
Mr Pibworth, 42, died on impact and a subsequent fire killed Mr Burnett, 55.
Mr. Pibworth, a pilot, had attempted to reach an altitude of over 19,700 feet, one of the criteria required for a gold medal from the British Balloon and Airship Club.