More than two dozen fire engines were sent to the spot after the fire broke out at Hotel Arpit Palace around 4 am. Most people in the hotel were sleeping at the time.
Video recorded on cellphones by eye-witnesses showed huge flames crowning the terrace of the large, white building. A person is seen dangling from the terrace and then jumping off.
The fire was brought under control around 7 am. The cause of the fire is not yet confirmed.
Thirty-five people were rescued and those injured were taken to the Ram Manohar Lohia Hospital.
Most of the deaths took place due to suffocation, the police said.
Karol Bagh, in central Delhi, is popular with tourists and lined with hotels and markets.
Authorities in Delhi have frequently launched raids to enforce building codes, fire safety measures and evacuation procedures but these steps have failed to check rampant violations by builders in a rapidly expanding capital city of more than 18 million people.
Last week, a fire broke out in a hospital in a Delhi suburb, forcing emergency evacuation of patients. Nobody was hurt.