Indonesian authorities will call off a two-day search for victims on Thursday after a military transport plane crashed into a residential area in Sumatra, killing around 140 people, the military said.

The Hercules C-130B was carrying 122 passengers when it crashed into houses in the northern city of Medan shortly after takeoff on Tuesday, killing all on board and more on the ground.

"We have not found any bodies since yesterday, so hopefully, we will be able to finish the search-and-rescue operation today," military spokesman Fuad Basya said.

Basya said 135 people were confirmed dead, although Indonesian media reported on Thursday at least 141 bodies had been recovered from the crash site.

The incident is the latest in a string of aviation disasters to hit Indonesia and prompted President Joko Widodo to order a review of its aging air force fleet. The type of plane that crashed in Medan went into service half a century ago.

The Indonesian air force has now lost four C-130Bs, a model that forms the backbone of its transport fleet. Jakarta has grounded its remaining eight C-130Bs until investigators discover the cause of the crash.

The crash could spur Southeast Asia's largest country to boost military spending, currently the lowest in the region at just 0.8 percent of GDP.

"The incident in Medan shows that the military's transport equipment needs to be renewed soon," parliamentarian T.B. Hasanuddin told reporters.

"We advise the government to buy newer aircraft rather than used ones even if they are more expensive," he said.

Some victims' families said passengers, many of whom are believed to have been civilians, had paid to get on the flight, which was headed to Tanjung Pinang in Riau Islands off Sumatra.

The air force has denied the allegations and said it will investigate any possible breach of rules.