The official cause of the tragedy is unknown, but there are reports the fire may have been caused by a band's pyrotechnics display at the Kiss club in Santa Maria, 300 kilometres west of the state capital, Porto Alegre.
Police had given a death toll of 245, but then revised it lower.
The Diário de Santa Maria website said the fire broke out around 2 a.m. local time Sunday.
It appears sparks ignited acoustic tiles lining the ceiling, Andrew Downie, a correspondent for Time magazine in Brazil, told CBC News. The blaze quickly spread and thick smoke filled the venue.
Many people were trampled, but the main cause of death was asphyxiation from the smoke, Downie said.
About 200 injured people were taken to area hospitals, the Estadão newspaper reported on its website.
Santa Maria, with a population of around 270,000, is a university town, and there were several school parties going on in the club, Downie said.
"It's also coming up to Carnival in a week's time, so the club was filled with people," he said.
Officials say the club can hold up to 2,000 people and that patrons were pushing and shoving to get out.
Marcos Koboldt, reporter for Radio Guaiba, speaking from Porto Alegre, told CBC the club only had one exit door. He said most of the victims were college students.
Police Maj. Cleberson Braida told local news media that the bodies were brought for identification to a gymnasium in Santa Maria.
Other deadly nightclub fires
The fire appeared to be among the deadliest in a nightclub since a 2004 fire killed 194 people at an overcrowded working-class nightclub in Buenos Aires, Argentina.
A blaze at the Lame Horse nightclub in Perm, Russia, broke out on Dec. 5, 2009, when an indoor fireworks display ignited a plastic ceiling decorated with branches, killing 152
A nightclub fire in the U.S. state of Rhode Island in 2003 killed 100 people after pyrotechnics used as a stage prop by the 1980s rock band Great White set ablaze cheap soundproofing foam on the walls and ceiling.
A welding accident reportedly set off a Dec. 25, 2000, fire at a club in Luoyang, China, killing 309.