The bodies removed from the Kiss nightclub in the southern city of Santa Maria were taken to a gymnasium for identification, police said.
Major Gerson da Rosa Ferreira, who led rescue efforts at the scene for the military police, told Reuters that the victims died of asphyxiation or from being trampled.
In addition to the number of deaths, more than 100 people were injured, police said, and most remain hospitalized.
Fire brigade colonel Guido Melo Pedroso told O Globo newspaper that rescuers had difficulty entering the premises because of "a barrier of bodies" at the entrance to the club.
Police officials had earlier reported that 245 people were killed. The death toll could still rise, police said later, from the people who are injured.
Television footage monitored by Reuters overnight showed people crying outside the club as shirtless firefighters used sledge hammers and axes to knock down an exterior wall to open up an exit.
Rodrigo Moura, who the newspaper Diario de Santa Maria identified as a security guard at the club, said it was at its capacity of between 1,000 and 2,000 people and patrons were pushing and shoving to escape, the AP reported. Police estimated the crowd at some 900 revelers.
"It was really fast. There was a lot of smoke, really dark smoke," survivor Aline Santos Silva, 29, told Globonews TV. "We were only able to get out quickly because we were in a VIP area close to the door."
President Dilma Rousseff cut short a visit to Chile and visited families of the victims at the Municipal Sports Center, where relatives were gathering to identify the bodies. She met with relatives of the injured at Hospital de Caridade de Santa Maria.
Rousseff declared a national three-day mourning period for victims of the fire.
"Sad Sunday!" Tarso Genro, the governor of Rio Grande do Sul state where the club is located, tweeted. "We are taking all of the possible and appropriate actions," the tweet read, according to a rough translation by NBC News. "I will be in Santa Maria later this morning."
The precise cause of the fire was still under investigation, authorities said. But Luiza Sousa, a civil police official in Santa Maria, told Reuters that the blaze started when someone with the band ignited what was described as a flare, which then set fire to the ceiling. The fire spread "in seconds," Sousa said.
The tragedy in Brazil recalled other nightclub disaster. A fire in West Warwick, Rhode Island, in 2003 killed 100 people after pyrotechnics used on stage by the rock band Great White set ablaze foam used for soundproofing on the walls. A Buenos Aires nightclub blaze in 2004 killed nearly 200 people.
Reuters noted that Brazil's safety standards and emergency response capabilities are under particular scrutiny as the country prepares to host the 2014 World Cup soccer tournament and the 2016 Summer Olympics.
The Brazilian state's Health secretary, Ciro Simoni, told the news service that emergency medical supplies from all over the state were being sent to the scene.