The death toll from the inferno stood initially at 70 but rapidly increased as firefighters searched the charred remains of the "Kiss" club, believed to have been packed with 300-400 revelers at the time of the blaze.
Brazilian President Dilma Rousseff cut short a visit to Chile, where she was attending a European and Latin American summit, to head to Santa Maria and oversee the response to the tragedy, a Brazilian official said.
It was not immediately clear what caused the blaze, but media reports said the fire broke out after 2:00 am (0400 GMT) when the nightclub was hosting a university party featuring a rock band using pyrotechnics.
Santa Maria fire chief Guido de Melo said the fire caused widespread panic, and that many revelers were trampled or died from smoke inhalation.
"The main cause of death was asphyxiation," de Melo was quoted as saying by Estadao newspaper.
Major Cleberson Bastianello, a military police commander in Santa Maria, confirmed that 245 people had been killed and told AFP another 48 had been taken to the hospital, an indication that the toll could climb further.
Pictures published by local media showed firefighters dousing the blackened shell of a red brick building with water to put out the flames.
"We have just gotten the fire under control," Colonel Silvia Fuchs of the local fire department was quoted by the G1 website as saying. "Now we are removing the bodies."
The bodies were taken to a sports stadium that was blocked off by police to keep grieving family members from streaming in. O Globo said a first truck carried 67 corpses followed by another with around 70.
Family members were gathering outside in the hope of getting news of their loved ones. The town is home to the Federal University of Santa Maria.
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