Russia's state space corporation, Roskosmos, said it had lost contact with the craft at 11.57 GMT on Saturday after a problem as the craft was shunted into pre-landing orbit.
A soft landing had been planned for Monday.
"The apparatus moved into an unpredictable orbit and ceased to exist as a result of a collision with the surface of the Moon," Roskosmos said in a statement.
It said a special inter-departmental commission had been formed to investigate the reasons behind the loss of the Luna-25 craft, whose mission had raised hopes in Moscow that Russia was returning to the big power moon race.
The failure underscored the decline of Russia's space power since the glory days of Cold War competition when Moscow was the first to launch a satellite to orbit the earth - Sputnik 1, in 1957 - and Soviet cosmonaut Yuri Gagarin became the first man to travel into space in 1961.
It also comes as Russia's $US2 trillion ($A3.1 trillion) economy faces its biggest external challenge for decades: the pressure of both Western sanctions and fighting the biggest land war in Europe since World War II.
Russia has not attempted a moon mission since Luna-24 in 1976 when Leonid Brezhnev ruled the Kremlin.
Russia has been racing against India, whose Chandrayaan-3 spacecraft is scheduled to land on the moon's south pole this week, and more broadly against China and the United States which both have advanced lunar ambitions.
"India's Chandrayaan-3 is set to land on the moon on August 23," the Indian Space Research Organisation (ISRO) posted on X, formerly Twitter, about the time news of the Luna crash broke.
Russian officials had hoped that the Luna-25 mission would show Russia can compete with the superpowers in space despite its post-Soviet decline and the vast cost of the Ukraine war.
"The flight control system was a vulnerable area, which had to go through many fixes," said Anatoly Zak, the creator and publisher of www.RussianSpaceWeb.com which tracks Russian space programs.
Zak said Russia had also gone for the much more ambitious moon landing before undertaking a simpler orbital mission - the usual practice for the Soviet Union, the US, China and India.
More than a decade ago, the failure of the 2011 Fobos-Grunt mission to one of the moons of Mars underscored the challenges facing Russia's space program: it could not even exit the earth's orbit and fell back to earth, smashing into the Pacific Ocean in 2012.
Eventually, in the early 2010s, Russia settled upon the idea of the Luna-25 mission to the south pole of the moon.Â
Luna-25 did manage to exit the earth's orbit.
But its failure means that Russia might not be the first to sample the frozen water which scientists believe the south pole of the moon holds.
It was not immediately clear what long-term impact the failed mission would have on the country's moon program, which envisages several more missions in coming years.
