More than 100 searchers were called in to scour the woods and fields of the central Virginia site of the crash for the third victim and any remnants of the balloon or its basket, state police said.
None of the victims has been identified by authorities.
Witnesses said they heard the anguished pleas of the passengers Friday night as the balloon touched the power line and erupted into flames.
On the ground, "It was complete silence," eyewitness Nancy Johnson said. "There were people praying. It was horrible."
The balloon crashed Friday night ahead of a balloon festival. It was among 13 balloons that took off from Meadow Event Park, home to the State Fair of Virginia, and was approaching a landing site nearby. Two of the balloons landed safely before the third hit the live power line.
The pilot attempted to retain control of the balloon and snuff the fire and two passengers either jumped or fell from the gondola, state police spokeswoman Corinne Geller said.
"Then witnesses recall hearing an explosion and the fire continued to spread," Geller said. The gondola and the balloon then separated.
Geller said the two bodies were found about 1,500 yards apart.
An air safety investigator with the National Transportation Safety Board said a preliminary report would be released on the crash in 10 days. Heidi Moats said investigators were seeking records on the balloon and the pilot.
Troy Bradley, past president of the Balloon Federation of America, said most serious accidents on balloons — including fires, electrocution or baskets becoming severed — happen after hitting power lines. Most of the time it's due to pilot error, he said.
Fatal accidents happen less often than with other types of aircraft, Bradley said.
"Hundreds of thousands of flights will go without any notice. That one that hits the news gets all the attention, but ballooning is a very, very safe form of aviation."
The crash occurred on the eve of the official start of the Mid-Atlantic Balloon Festival, which was canceled followed the crash. The area is about 25 miles north of Richmond.
Johnson said the crash occurred in an instant.
"One minute the balloons were hovering in a field behind Event Park, the next everyone is pointing at sky," she said.
Carrie Hager-Bradley said she saw the balloon in flames on her way home from the grocery and heard people yelling.
"They were just screaming for anybody to help them," she told WWBT TV. One person screamed, "Help me, help me, sweet Jesus, help. I'm going to die. Oh my God, I'm going to die."
Donnell Ferguson said he was cutting grass when he saw a couple balloons passing by. One was low, barely at tree-top level.
"At first I saw a cloud of black smoke and then I noticed the basket on fire," he said. "Then it just took off real fast and disappeared."
The crash occurred during a special festival kickoff event Friday for about 740 people.
Twenty balloonists from the Mid-Atlantic region were to participate in the weekend festival, said Greg Hicks, a spokesman for the venue.
"It's just a shocking situation for everyone," Hicks said.
Robert Rinck, who was operating a frozen yogurt concession, said he watched the balloons lift off against a beautiful sunset. A few minutes later, someone said a balloon was on fire. He looked up and saw fire coming from the balloon.
"I just didn't know why it was going up and not down," Rinck said.
Johnson, who went to the festival with her husband, photographed the balloon as it rose.
"I turned around and just automatically started taking pictures," she said. "It just kept going up, up, up in the air."
Some hot air balloons landed safely in Debra Ferguson's yard, The Free Lance-Star of Fredericksburg reported. One of the men in the balloons pointed up at another still in the air and said he thought it might be in trouble.
"As soon as we looked up, the thing blew up right there," Ferguson told the newspaper. "All I heard was, 'Oh my God, Oh my God,' and all you saw was the top of the balloon still flying, but all of the basket was gone. All of the flames just disappeared. ... It was like a match — poof — and then it was gone."
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Associated Press writers David Koenig in Dallas and Steve Szkotak in Richmond contributed to this report
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