The tornado scorched through Saroma in the far north of the island of Hokkaido, tearing apart the prefabricated homes of workers who were digging a nearby tunnel.
The tornado, which struck amid heavy rain, made a direct hit on their barracks, said senior fire department official Yoshihiro Sasaki.
"It seemed that it came out of nowhere and vanished all at once," he said.
Nine people were killed and 21 others were hospitalised, with all missing people accounted for, prefectural police said.
"I saw the tornado passing behind my car. It was 100 meters wide and it moved along for about one kilometre," or about half a mile, said local official Takeshi Mukai, 45.
"It all happened before I could say, 'Oh!'"
Thirty-three homes were completely destroyed, with 29 others suffering partial damage, said Chiaki Kichimoto, an official at the Saroma town office.
She said 52 people were sheltered after losing their homes and that electricity was knocked out from 630 houses.
Prime Minister Shinzo Abe's cabinet set up a special office to co-ordinate the response to the disaster, an official said.
Abe, dealing with Japan's first major natural disaster since taking office in late September, dispatched his disaster management chief, Kensei Mizote, to the site.
Television footage showed the small homes torn to pieces and thrown onto nearby cars. Pieces of wood also flew off larger homes, whose windows were shattered.
"Never in my life have I heard of a tornado in our neighbourhood," said Katsuya Watanabe, 67, who runs a restaurant and hotel near the town off the Sea of Okhotsk.
"I'm trying to contact my relatives and friends around there but the phone lines to the place are dead," he said. "I'm very worried about them."
Tornadoes -- known in Japanese as "tatsumaki" or "spiralling dragons" -- are relatively rare in the island nation, which is routinely hit hard by typhoons and earthquakes.
"We don't have any record of tornadoes occurring in this area," said Koichi Wada, a weatherman at the Abashiri Meteorological Observatory, which covers the area.
"An active rain cloud passed the town of Saroma at 1:30 p.m. (0430 GMT) and triggered the phenomenon," he said.
Saroma, a town of 6,200 people whose main industries are dairy farms and scallop fishing, is known to Japanese mostly for the nearby top-security Abashiri prison which has incarcerated some of the country's top gangsters.
Rescue workers in blue uniforms sifted through the debris, crawling into the remains of prefabricated homes. They rolled cars away from the disaster scene as they looked for survivors.
The prefabricated buildings were used as homes and offices by workers who were building a tunnel for a road through a mountain, said Yuko Hirouchi, a town official.
Some 100 workers were involved in the project led by industrial company Kajima, she said.
"It was raining terribly and the wind was terrible too," witness Keiko Takeda told public broadcaster NHK.
"It was like a storm or a typhoon although it was momentary," she said. "Houses were gone and roofs were gone in a moment."

Copyright AFP (Agence France-Presse), 2006