Another 10 people, mostly relatives of the first man who died, were infected and undergoing treatment in isolation in hospital, Xinhua said.
The town of 10,000 people has been sealed off and a team of health experts had been despatched to the area, the local health bureau said.
They have warned that anyone with a cough or fever who has visited the town since mid-July should seek treatment at a hospital.
A food seller surnamed Han at the Crystal Alley Market in Ziketan told the Associated Press that authorities had ordered homes and shops to be disinfected and that residents should wear masks when they go out.
He also said that 80 per cent of shops in the town were closed and that the prices of disinfectants and some vegetables had tripled.
"People are so scared. There are few people on the streets," Han told the agency by phone.
"There are police guarding the quarantine centre at the township hospital but not on the streets."
An official surnamed Wang at a local disease control centre told the Associated Press that the situation in Ziketan was stable, and added that measures being taken were "scientific, orderly, effective and in accordance with the law".
According to the World Health Organisation (WHO), pneumonic plague is spread through the air and can be passed from person to person through coughing.
It is caused by the same bacteria that occurs in the bubonic plague, or the Black Death, that killed an estimated 25 million people in Europe during the Middle Ages.
It is one of the deadliest infectious diseases and can kill humans within 24 hours of infection, the WHO says.
Vivian Tan, the WHO spokeswoman in China told the Associated Press that the country reported the first death and 11 other cases to the organisation on Saturday.
"In cases like this, we encourage the authorities to identify cases, to investigate any suspicious symptoms among close contacts and to treat confirmed cases as soon as possible," she said
"So far, they have done exactly that, so at this point we don't have any additional advice."
In 2004, eight villagers in Qinghai province died of the plague, most of them infected after killing or eating wild marmots – an animal related to gophers and prairie dogs.
They live in the grasslands of China's northwest and Mongolia, where villagers often hunt them for meat.