Over 50 children between four and six years old were on board when the bus was hit, a security official said, adding that it appeared the railroad crossing was not closed as the train sped toward it.
The crash is the worst such tragedy to hit the country since its first freely elected president, Mohammed Morsi, took office last summer, and will likely give ammunition to critics who say he has done little to improve life for ordinary Egyptians.
Books, school bags and children's socks were strewn along the tracks near the blood-stained, mangled bus near al-Mandara village in the central Assiut province. Parents of the missing wailed as they looked for signs of their children. An Associated Press reporter at the scene said many of the remains were unrecognizable.
A woman who called herself Um Ibrahim, a mother whose three children were on the bus, was pulling her hair in grief. "My children! I didn't feed you before you left," she wailed. A witness said the train pushed the bus along the tracks for nearly a kilometer (half a mile).
As one man picked up pieces of shattered limbs he screamed: "Only God can help!" Two hospital officials said more than a dozen injured were being treated in two different facilities, many with severed limbs. All officials spoke anonymously as they were not authorized to brief reporters.
The carnage prompted grieving families to set up road blocks in the area, preventing Morsi's prime minister from reaching the scene. Some burned logs and fired automatic rifles in the air in denunciation of Morsi, the AP reporter said.
Prime Minister Hesham Kandil was greeted by a jeering crowd as he arrived with a detachment of riot police at Assiut's main hospital, where the injured were being treated. Residents of Assiut are traditionally heavily armed and many hold tribal alliances. They have complained that a lack of ambulances and equipment in the area had hindered hospitals' response.
In a televised address from his office in Cairo earlier in the day, Morsi said he had tasked the state prosecutor with investigating the crash, which led to the resignation of the transport minister. "Those responsible for this accident will be held accountable," he said.
The Muslim Brotherhood, Egypt's most powerful political force and Morsi's base of support, blamed the crash on a culture of negligence fostered by deposed leader Hosni Mubarak.
"It is unacceptable that things remain as they are without drastic treatment," it said in a statement, adding that it recommends a renovation of the entire transport system in order to spare the lives of citizens.
Egypt's railway system has a poor safety record, mostly blamed on decades of badly maintained equipment and poor management during the Mubarak era. Accidents due to negligence regularly killed scores over the three-decade rule of Mubarak, who was accused of valuing loyalty over competence in many appointments of senior officials. Widespread corruption has also been blamed for the underfunding of government services, particularly in poor provinces outside Cairo.
Opposition activists have accused Morsi of continuing the mistakes of his predecessor by not overhauling the system, and focusing too much on foreign policy while moving slowly to tackle a myriad of domestic problems.
Most recently the president positioned Egypt as the Palestinians' new Arab champion, but with more children killed in Saturday's accident than by Israeli bombs in the Gaza Strip, he is already under pressure to refocus efforts at home.
"President Mohammed Morsi is responsible and must follow up personally," one political group, the April 6 movement, said in a statement. "He is the one who chose this failed government whose disasters increase day after day."
Saturday's accident comes one week after two trains collided in another southern province, killing four people. Many such accidents are blamed on an outdated system that relies heavily on switch operators instead of automated signaling.
The railway's worst disaster took place in February 2002 when a train heading to southern Egypt caught fire, killing 363 people. Media reports quoted official statistics saying that rail and road accidents claimed more than 7,000 lives in 2010.
In al-Mandara village, angry families and locals gathered near the tracks, shouting at officials. Some chanted: "Down with Morsi!"
Sheik Mohammed Hassan, a village elder, said the government should be paying more attention to domestic problems in lieu of the Gaza Strip.
"The blood of people in Assiut is more important than Gaza," he said.