The state broadcasting television channel NHK said that two people died when more than 50 cars slid off the elevated Hanshin Expressway which connects Japan's second largest city of Osaka and the Hyogo port of Kobe on the west coast. At least 10 trains were derailed by the tremor.
Several apartment buildings - some as high as seven storeys - collapsed in Kobe, a city of 1.4 million people, and dozens of houses in the city and the nearby island of Awajishima collapsed.
The western city of Ashiya, an up-market residential area near Osaka, was said to have been devastated. NHK said up to 200 people were believed buried in rubble there.
The earthquake struck at 5.46am local time. At 9.15am NHK reported buildings were still aflame in Kobe. Whole sections of street had collapsed and a famous Shinto shrine was completely destroyed.
The fuel pipeline to aircraft operating out of the recently opened offshore New Kansai International Airport, serving Kobe and Osaka, was reportedly severed, and morning flight crews had been unable to reach the airport.
The epicentre of the quake, with a magnitude of 7.2, was on the sparsely populated island of Awajishima, where at least 100 houses were destroyed, four people killed and10 injured.
NHK television showed film of its Kobe office being shaken violently by the tremor which toppled filing cabinets and moved desks several feet. Hanshin Expressway, littered with abandoned cars, was cut in at least three places with yawning gaps in the road.
Financial markets in the Osaka area delayed opening trading this morning.
The earthquake was believed the most powerful in at least two decades to strike a densely populated urban area in Japan.
Kobe is about 280 miles west of the capital,Tokyo, where the quake was barely felt.