Bambang Bhakti, the airline's chief director, said the team saw the wreckage near Ampisibil village in the area of Bintang Mountains at a height of 2,850 metres.
The aircraft, which was carrying enough fuel for three-and-a-half hours flying, crashed about 37 kilometres south of Oksibil.
Efforts to hunt for the missing plane got underway on Monday after being hampered by bad weather.
Ground controllers lost contact with the Twin Otter as it flew over the densely-forested and mountainous region.
|Officials say there is little hope of finding any survivors among the 16 people on board [EPA]
Air travel is one of the few options for long-distance travel in sparsely-populated Papua and accidents are relatively common across the Indonesian archipelago.
In the past some aircraft thought to have crashed in the region's dense jungle have never been found.
Indonesia, which relies heavily on air transportation, has one of the worst safety records in Asia.
It has suffered a series of air disasters in recent years, affecting both its commercial and military aircraft.
Last month, the European Union removed four Indonesian airlines - flag carrier Garuda Indonesia, Mandala, Airfast and Premiair - off its blacklist of banned carriers, citing safety improvements.
However, the ban remains in place for all other Indonesian airlines.