In a statement, police said they were called to the hotel in the capital's leafy Palermo neighbourhood where they were notified of an "aggressive man who could be under the effects of drugs and alcohol."
The hotel manager said he heard a loud noise at the back of the hotel, and when police arrived they found that a man had fallen over the balcony in his room, the statement said.
Emergency workers confirmed the death of the 31-year-old British singer, who was reportedly found in the hotel's interior patio.
"I am in shock right now. Liam was always so kind to me," American singer Charlie Puth said on Instagram. "He was one of the first major artists I got to work with. I cannot believe he is gone."
US music channel MTV, streaming service Spotify and the BRITs British music awards all expressed their grief on social media, sending their condolences to his family and loved ones.
Payne had a son named Bear with British TV personality and Girls Aloud singer Cheryl in 2017.
Neither Payne's record label Republic Records, nor its owner Universal Music Group UMG.AS, could immediately be reached for comment.
Police had received a call from a worker at the hotel requesting urgent help with an intoxicated guest, according to audio related to the case obtained from the Buenos Aires security ministry.
"When he is conscious he is destroying the entire room and we need you to send someone," the worker said, adding that the guest's life was at risk because their room had a balcony.
Emergency responders removed the body from the hotel to take to the morgue, while fans and onlookers who had gathered through the early evening, some hugging each other and crying, burst into applause.
The For You singer rose to global fame as part of the since-disbanded pop band One Direction, alongside Harry Styles, Zayn Malik, Niall Horan and Louis Tomlinson.
The boy band got its start after finishing third on the British version of the X Factor music competition show in 2010, but the group broke up in 2016 as its members pursued different projects including solo careers.
One Direction was ranked the third greatest boy band of all time by Entertainment Weekly in 2024.
According to Celebrity Net Worth, Payne's One Direction and solo career helped garner him a net worth of some $US70 million ($NZ115 million).
Reuters reporters at the scene saw crowds gathering outside the hotel, where dozens of police and emergency services teams had cordoned off an area as night fell on the city.
Local news outlet Todo Noticias TV interviewed Hernan Palazzo, who works near the hotel in Palermo, who said, "The neighbourhood is very shaken up ... There's a lot of police, some fans arriving. It is very sad."
One Direction fan Violeta Antier told Reuters she had come straight away after he sister told her Payne had died.
"I saw him two weeks ago at a Niall (Horan) concert, another One Direction member. He was there, I saw him," she said. "He was OK."
Payne had on October 2 attended the Buenos Aires concert of his former bandmate Niall Horan on the Argentine leg of a Latin American tour that spanned Mexico, Brazil, Chile, Peru and Colombia. The two had posted videos together and with fans.
The musician has previously spoken publicly about his struggles with mental health and using alcohol to cope with the pressures of fame.
Last year, he published a video to fans on his YouTube channel in which he spoke about having given up alcohol and thanked supporters for sticking with him through difficult times.
Earlier on Wednesday, Payne had appeared to post on Snapchat about his trip in Argentina, talking about riding horses, playing polo, and looking forward to returning home to see his dog.
"It's a lovely day here in Argentina," he said in the video.
