The floodwaters burst open a dam and a deluge of water poured through a valley in the state of Uttarakhand.
Villages have been evacuated, but officials warned more than 125 people may have been caught in the torrent.
Video showed the floodwater barrelling through the area, leaving destruction in its wake.
One witness said a wall of water and rock sped down the Dhauli Ganga river so quickly there was no time to sound the alarm.
Prime Minister Narendra Modi said he was monitoring the situation. "India stands with Uttarakhand and the nation prays for everyone's safety there," he wrote on Twitter.
Uttarakhand police said the avalanche struck at about 11:00 local time (05:30 GMT), destroying a dam known as the Rishiganga Hydroelectric Project.
Police said the impact catapulted water along the Dhauli Ganga river, damaging another power project downstream in the Tapovan area.
One witness compared the flash flood to "a scene from a Bollywood film".
Uttarakhand Chief Minister Trivendra Singh Rawat said 125 people were confirmed missing so far, but that number could rise.
"Seven bodies have been recovered from the site and rescue operations are going on," Mr Singh Rawat told reporters at a briefing on Sunday.
Most of those missing were workers at the two power projects swept away by the deluge.
More than 50 people working at the Rishiganga Hydroelectric Project were feared dead, Uttarakhand police chief Ashok Kumar said.
But he said some workers had been rescued from the site.
Emergency crew managed to rescue 16 workers who had been trapped inside a tunnel that had been filled with debris.
Indian media said around 30 others were trapped in a second tunnel, with emergency crews prepared to work through the night to rescue them.
Mr Singh Rawat said teams from the police and the army were "doing their best to save the lives of the workers".