Many people jumped or were pushed to their deaths into the Tigris River about 30 feet below the bridge, while others were crushed in the crowd, reported the Associated Press.
Most of the dead were women and children, said Interior Ministry spokesman Lt. Col. Adnan Abdul-Rahman.
Officials said the number of fatalities was expected to climb. "An hour ago the death toll was 695 killed, but we expect it to hit 1,000," said Dr Jaseb Latif Ali, a general manager at Iraq's Health Ministry, according to Reuters.
Television images showed people scrambling down from the bridge to escape the surging crowd and piles of slippers left behind by the crowds.
Ambulances rushed to the scene and people carried bodies in stretchers while others lined the river banks. People covered bodies with whatever they had: foil, clothes, or plastic sheets.
Tensions were already running high in the procession near Baghdad's heavily Shiite Kazimiyah district because of a mortar attack two hours earlier against the shrine where the marchers were headed. The shrine was about a mile from the bridge.
At least seven people died in the mortar explosions. U.S. Apache helicopters fired at the attackers, reported the AP.
Television reports said about 1 million pilgrims from Baghdad and outlying provinces had gathered near the shrine in the Kazimiyah district for the annual commemoration of 9th century Shiite saint, Mousa al-Kadhim. The bridge links a Sunni and Shiite neighborhood.
Health Minister Abdul-Mutalib Mohammed told state-run Iraqiya television that there were "huge crowds on the bridge and the disaster happened when someone shouted that there is a suicide bomber on the bridge," according to the AP.
"This led to a state of panic among the pilgrims and they started to push each other and there was many cases of suffocation," he said.
Elsewhere, a U.S. soldier was killed Tuesday by a roadside bomb in the city of Iskandariyah, about 30 miles south of Baghdad, the military reported.
The town of Qaim, about 200 miles northwest of Baghdad, was reportedly quiet and virtually deserted Wednesday after a day of U.S. airstrikes and heavy fighting between the pro-government Bumahl tribe and the pro-insurgent Karabilah tribe.
Iraqi officials said 45 people had died, most in the tribal clashes, during which hundreds of residents fled their homes to the surrounding countryside.
The week's violence came amid new twists in the effort to complete a draft constitution before an Oct. 15 voter referendum.
On Tuesday, U.S. ambassador Zalmay Khalilzad said further changes were possible to the constitution, which is supported by the Shiite and Kurd majorities but vehemently opposed by the minority Sunnis.
Shiite leaders had no comments on the ambassador's remarks.