The death toll from the inferno stood initially at 70 but rapidly increased as firefighters searched the charred remains of the establishment named “Kiss.”
“We have confirmed more than 150 victims,” Santa Maria police commissioner Sandro Meinerz told Globo television.
Details of the tragedy were still sketchy. But according to media reports, the fire broke out after 2:00 am (0400 GMT) when the nightclub was hosting a university party featuring a rock band.
The band used pyrotechnics as part of its show, O Globo newspaper reported on its website. The paper said the popular club in the university town was packed with between 300 and 400 party goers when the fire erupted.
Santa Maria fire chief Guido de Melo said there was panic in the aftermath of the fire and 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.
Pictures published by local media showed firefighters dousing the burned-out red brick building with water to put out the flames.
“We have just taken 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.”
According to O Globo, the dead were being taken to a nearby sports club, which has been converted to a makeshift morgue.
Family member were gathering outside in the hope of getting news of their loved ones.
Rio Grande do Sul governor Tarso Genro was expected in Santa Maria later Sunday, O Globo said.
“This is a sad Sunday,” he is quoted by the paper as saying in a Twitter message. “We are taking all possible passive and active measures.”
He did not elaborate.
Brazilian President Dilma Rousseff, who is attending a regional summit in Chile, has been notified of the tragedy, O Globo said.
The town is home to the Federal University of Santa Maria.