The village of Luttach or Lutago is a popular ski resort. Photo: ppsberlin/Flickr
The group of 17 was waiting by their tourist bus at 1.15am, after spending the night at a club.
Of the 11 injured, three are seriously hurt. The two most seriously injured were flown by helicopter to a hospital in Innsbruck, Austria, while the others are being treated in Italy. Two of the injured appear to have been locals.
According to Italy's Corriere della Sera newspaper, the driver, a 28-year-old local, had a high blood alcohol level when police first arrived and has now been taken for further tests.
More than 160 members of Italy's rescue services were dispatched to the scene.
Police have yet to release the identities of the victims, as the tour group did not all know each other and several were not carrying identity documents.
“A terrible scene, people on the ground, cries and pain, a tragedy – we don't have the words,” a hotel receptionist told the Italian newspaper.
“We have asked several times for a radar on this road as drivers speed up as soon as they leave Lutago, and here, one kilometre from the centre, they go at 100 kilometres an hour.”
“The New Year has begun with a tragedy,” South Tyrol governor Arno Kompatscher told reporters.
The German foreign ministry in Berlin said its consulate in Milan was “in close touch with the Italian authorities who are proceeding with the identification of the victims, assisting those who have been affected.”
Lutago, located at an altitude of 970 metres (3,200 feet) in the picturesque Aurina valley, is popular with tourists who use the ski slopes of Klausberg and Speikboden.
The village of about 800 residents is the location for a popular Italian television series “A un passo del ciel” (“One step from heaven”).
Last week, three Germans – a woman and two girls, one of them aged seven – were killed in an avalanche in South Tyrol.