The stampede occurred in Mina as tens of thousands of pilgrims headed toward al-Jamarat, a series of three pillars representing the devil that the faithful pelt with stones to purge themselves of sin.
The crush was sparked when pilgrims tripped over luggage, Saudi Health Minister Hamad bin Abdullah Al-Maneh told reporters.
At least 345 people were killed and 289 others were injured.
"We received some 600 casualties, many of whom were transferred to other hospitals," a medical source at Mina General Hospital said. Many of the bodies brought to hospital were from South East Asian countries.
It was the latest in a succession of stampede tragedies to hit the hajj pilgrimage despite efforts by the Saudi authorities to improve safety.
The Saudi-owned Al-Arabiya news channel showed footage of the bodies of dozens of pilgrims lying on the ground, covered with white shrouds.
"Seventy ambulances were rushed to the site of the accident and the seven medical centres of Mecca and (nearby) Arafat were treating the victims, Khaled Yassin, head of rescue operations in the holy city of Mecca, told news agency AFP.
"It was impossible to evacuate the victims by helicopter because of the density of the crowd," he said.
This number of pilgrims at the year's event was estimated at more than 2.5 million, he said.
Interior ministry spokesman Mansur Al-Turki said the accident occurred "because of the luggage that fell which he said led to a rush at the eastern entrance of the Jamarat bridge, where the pilgrims stone three pillars symbolising the devil in the valley of Mina, east of the holy city of Mecca.
One Egyptian pilgrim on the scene told AFP: "Just when we went to throw the stones, I saw a huge rush and pilgrims falling under the feet of thousands of other pilgrims."
At Mina General Hospital, an elderly man cried as he held a white robe stained with blood.
"This is the blood of my wife who died as a martyr in my hands," sobbed Egyptian Qotob Metwali who was being treated at the hospital together with his son Metwali.
"We were walking toward the bridge when we saw piles of luggage which caused people to fall, and then we heard women and elderly people screaming," said Mr Metwali.
At the site of the tragic accident, bulldozers were used to remove the piles of luggage to clear the way on the bridge where a few hours later the scene returned to normal as pilgrims came back to stone the devil.
Safety increased
The stoning of Satan is the riskiest episode of the hajj as the pilgrims jostle to make sure their pebbles touch the pillar.
The tragedy at the stoning site, a notorious bottleneck as pilgrims move from pillar to pillar to throw their stones, came despite recent attempts to improve safety.
Saudi authorities replaced the small round pillars with short walls to allow more people to throw their stones without jostling for position.
They also recently widened the bridge, built extra ramps and increased the time pilgrims can carry out the rite, which on the second and final days traditionally takes place from midday until sunset.
A total of 251 Muslim pilgrims were trampled to death in the 2004 hajj as people panicked during the ritual stoning.
The stoning ritual, which is spread out over three days, marks the final part of the hajj pilgrimage for the more than two million Muslim pilgrims who have flocked to Mecca from around the world.
In 2003, 14 pilgrims, including six women, were killed in a stampede during the first day of the stoning ritual, and 35 died in 2001, while in 1998 the hajj saw 118 killed and more than 180 hurt at Mina.
The deadliest toll of the pilgrimage was in July 1990 when 1,426 pilgrims were trampled or asphyxiated to death in a stampede in a tunnel, also in Mina.
Following a journey made by Prophet Mohammed over 1,400 years ago, the pilgrims this year flocked to the plain of Arafat south of Mina on Monday to pray for mercy in the central rite of the hajj.
Before coming to Mina on Tuesday, many spent the night in the sacred site of Muzdalifah where they collected pebbles for the stoning ritual
The hajj is one of the five pillars of Islam and a once-in-a-life time duty for those able to complete it.
The latest tragedy comes days after 76 people were killed when a hostel in the heart of Mecca collapsed last week.
Almost 60,000 security, health, emergency and other personnel were involved in organising this year's hajj, trying to prevent a repetition of the deadly incidents that have marred it in recent years.