Killer interview question: How old are you?

Well it is illegal to ask but if you look at someones resume and see when they graduated you can assume they were 21-24 at that time and do the maths to find out someones age. With that in mind its a question that doesn't need to be asked for simply confirming a fact.
If asked I would suggest also asking the person interviewing you their age, which seems reasonable in a conversational setting. If they are a similar age to you and you are both no longer teenagers, you might want to ask if they are still finding them selves to be useful in their "old age" and using the situation to show that if nothing else, your maturity and wisdom has given you the skills to build rapport with people quickly.
Its only sad if you are forty something and you still cant turn a situation to your advantage.

I agree that being diplomatic is best to handle a sensitive question regarding age during an interview. What if we are asked to provide DOB during on-line application? In my last 3 job interviews ago, I was asked to complete a form while waiting for my interview. It require me to provide my DOB for purpose of background check. How would you handle it if it was you?

It is a question of how much do you wish to push the issue. Several factors could be the motivation for the interviewer to pursue such a line of questioning.

For example:
- arrogance/prejudice - after all the economic times and scarcity of desirable roles create such a mindset in some employers
- test your willingness to counter - and whether you do demonstrate an argumentative tendency and potentially divulge a weakness
- your ability to re orient/sculpt the question into a positive reflection of your acquired knowledge and demonstrated capacity to operate in the workplace with people of diverse age, background and seniority.

Only you can be the judge of whether to contest the question or be diplomatic. Most times diplomatic tact is the wise choice.

Yes, question is against the law. Would have dropped a hint its not appropriate (they should know)...

Same question was asked of me at an interview with a major local banking institution by a senior line manager.

Initially I replied with a quote from Satchel Paige that goes: "Age is mind over matter; if you don't mind, it doesn't matter".

But this did not satisfy the questioner and I was further pressed to give a number which I did. Even though I was told I had good experience and they would be in touch, they never did. I did not contact the bank's HR to report the breach of their published policy.

Age prejudice plainly exists in the work place now.

But even though it's hard now, you are best not to work in a place where such prejudice and discrimination so near the surface. Just keep being positive and keep looking; you will find the right job.