One train in Friday's accident also hit a freight train parked nearby in the district of Balasore in Odisha state in the east of the country, leaving a tangled mess of smashed rail cars and injuring 803.
The death toll has reached 288, said KS Anand, chief public relations officer of the South Eastern Railway.
Dead bodies are still trapped in the mangled coaches and the rescue operation is continuing, a Reuters witness said, while the death toll is expected to rise.
A preliminary report indicates that the accident was the result of signal failure, Anand said.
"The Coromandel Express was supposed to travel on the main line but a signal was given for the loop line instead, and the train rammed into a goods train already parked over there," he said
"Its coaches then fell onto the tracks on either side, also derailing the Howrah Superfast Express."
Surviving passenger Anubha Das said he would never forget the scene.
"Families crushed away, limbless bodies and a bloodbath on the tracks," he said.
Video footage showed derailed train coaches and damaged tracks, with rescue teams searching the mangled carriages to pull the survivors out and rush them to hospital.
Dead bodies were lying on the bloodstained floor of a school used as a makeshift morgue and police helped relatives identify the bodies, covered with white cloths and placed inside chained bags.
Prime Minister Narendra Modi arrived at the scene, talked to rescue workers and inspected the wreckage.
He also met the survivors at hospitals.
"(I) took stock of the situation at the site of the tragedy in Odisha. Words can't capture my deep sorrow. We stand committed to providing all possible assistance to those affected," Modi said.
A witness involved in rescue operations said the screams and cries of the injured and the relatives of those killed were chilling.
"It was horrific and heart-wrenching," he said.
Families of the dead will receive one million rupees ($A18,150) while the seriously injured will get 200,000 rupees, with 50,000 rupees for minor injuries, Railway Minister Ashwini Vaishnaw said.
Some state governments have also announced compensation.
"It's a big, tragic accident," Vaishnaw told reporters after inspecting the accident site.
"Our complete focus is on the rescue and relief operation, and we are trying to ensure that those injured get the best possible treatment."
"We rescued at least 30 people, and some of them managed to survive but three or four of them died," said Sanjeev Rout, an electrician.
A few metres away, rescue workers tried to cut their way into a damaged red-coloured coach.
The collision occurred about 7pm on Friday when the Howrah Superfast Express from Bengaluru to Howrah in West Bengal collided with the Coromandel Express from Kolkata to Chennai.
Indian Railways says it transports more than 13 million people every day.
But the state-run monopoly has had a patchy safety record because of ageing infrastructure.
Odisha Chief Minister Naveen Patnaik described the crash as "extremely tragic".
Opposition Congress party leader Jairam Ramesh said the accident reinforced why safety should always be the foremost priority of the rail network.
Modi's administration has launched high-speed trains as part of plans to modernise the network but critics say it has not focused enough on safety and upgrading ageing infrastructure.
India's deadliest railway accident was in 1981 when a train plunged off a bridge into a river in Bihar state, killing an estimated 800 people.
