Navy ships and aircraft had been searching since the afternoon when the plane lost contact with air traffic controllers.
More than a dozen children were believed to be among the passengers on the plane travelling from the southern city of Myeik to Yangon.
"Now they have found pieces of the damaged plane in the sea 136 miles (218 km) away from Dawei city," said Naing Lin Zaw, a tourism official in Myeik, adding the navy was still searching the sea.
The commander in chief's office said the plane lost contact at about 1:35 pm (local time) off Myanmar's southern coast.
There was conflicting information about the number of people on board.
Giving an updated figure, the office said 106 passengers were on board -- soldiers and family members -- along with 14 crew.
The air force source said more than a dozen of those on board were children.
It is monsoon season in Myanmar but there were no reports of bad weather at the time the plane went missing.
The plane was a Y-8F-200 four-engine turboprop, a Chinese-made model still commonly used by Myanmar's military for transporting cargo.
The army said it was delivered in March last year and had logged 809 flying hours.
The former military junta bought many of the aircraft from Myanmar's giant neighbour during their 50 years of isolated rule, when they were squeezed by Western sanctions.
"Myanmar air force has very bad safety performance," he said, asking to remain nameless.
Myanmar's military fleet has a chequered recent history of plane crashes.
All five crew died when an air force plane burst into flames soon after taking off from the capital Naypyidaw in February last year.
Three army officers were killed in June when their Mi-2 helicopter crashed into a hillside and burst into flames in south-central Bago.
A surge in demand for air travel as Myanmar opens up has stretched the impoverished country's aviation infrastructure, in particular in remote airports.
The worst in recent years was in 2012 when an Air Bagan jet crash-landed in thick fog and burst into flames short of the runway at Heho airport, killing one passenger and a motorcyclist on the ground.
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