"The plane crashed in the lagoon, about 160 yards away from the runway", Chuuk airport manager Jimmy Emilio told the BBC.
The Air Niugini plane was on approach to the airport at the island, part of the Federated States of Micronesia, when it apparently fell short of the runway.
Pictures and video posted on social media showed locals scrambling on small boats to rescue the passengers and crew as the water covered most of the aircraft's fuselage.
Air Niugini management staff held a crisis meeting after the incident.
The accident happened in the tiny Pacific island nation of Micronesia. The flight is part of the airline's bi-weekly service between the Federated States Of Micronesia and Port Moresby.
All passengers were reportedly rescued safely from Air Niugini's partially submerged Boeing 737-800.
Flight PX073 was operating from Pohnpei in Micronesia and was due to continue to Port Moresby.
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The airline said the plane, which was involved in a collision with another aircraft earlier this year, had "landed short of the runway".
"We don't really know what happened. people were rescued by boats".
Air Niugini is the national airline of Papua New Guinea and does not have a history of serious accidents.
He said he has yet to see a passenger manifest, but he understands at least 30 passengers and 10 crew members were aboard.
"On a normal landing you end up 30m from the end of the runway and the end of the runway means water", he said.
The Australian Broadcasting Corporation said nine people were taken to hospital for treatment.