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Hundreds of people were on the beach at Caparica, 20 miles south of Lisbon.
One witness said the plane approached the beach in silence, so people only noticed it seconds before it came to land.
He was released after questioning last night along with his younger pupil pending an ongoing investigation, and the pair are due to be quizzed in court later today.
The tragedy happened on a stretch of the beach near the Bicho d'Agua and Leblon restaurants.
Witnesses caught up in the drama said many sunbathers were caught unawares because the light aircraft approached in silence - presumably because of the reported engine failure.
A man described by police as a 56-year-old, believed to be Portuguese and unrelated to the girl who died, was also killed.
The devastated father of the eight-year-old girl killed when the plane made its crash landing accused the pilot of putting his own safety before the lives of his victims.
Journalist Enrique Pinto Coelho, who was playing on the beach with his son near the spot where the plane came down, told Portuguese TV channel SIC: 'I've just seen this plane make an emergency landing.'It came down and advanced around 100 metres in the wet sand after it landed, taking two people who were lying on the beach with it.'We were unfortunately very near the landing spot and were playing football.
Everyone was really disgusted.' Lisbon Port police chief Paulo Isabel said: 'Any loss of life is to be regretted but given the fact this plane came down on a beach with hundreds of people on it at the height of summer, we could have been looking at many deaths and many injuries.' The pilot of the plane was described by a spokesman at his flight school as 'very experienced' with hundreds of hours of flight time.