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We report on the observation of light-induced excited-state dynamics in V₄O₇ thin films. This material is correlated oxide with reversible insulator-metal transition (IMT) at temperature T_c~237 K. The pump-probe femtosecond optical spectroscopy within a broad range of the sample temperatures and excitation energies reveals nonthermal light-induced IMT below the Tc. Nonlinear optical response of V₄O₇ was found relatively high in both, High-T metallic and Low-T insulating phases, showing complex evolution of the photoexcited state. The photoexcitation results in the generation of strong acoustic phonons. The ultrafast formation of a nonequilibrium initial state within ~300 fs in insulating Low-T V₄O₇ results in the subsequent formation of metallic phase within several picoseconds.  The mechanism of the IMT is associated with polaronic effects, where the Low-T V₄O₇ phase likely originates from strong electron-electron correlations with Wigner crystallization of small polarons. The photoinduced screening of electronic correlations and melting of polaronic order into noncorrelated polaronic states is considered as the most possible pathway for the IMT in V₄O₇.