Three bodies are believed to remain under the rubble in San Giuliano di Puglia, more than 24 hours after the earthquake, which was the worst to hit Italy for five years.
An entire class of six-year-olds and two women are now known to have died.
The are also reports that another "strong" tremor has hit the region on Friday.
Angry questions are being asked in the village about
The school's gym has been turned into a makeshift mortuary - 26 small white coffins have been laid out for the children.
Their families sat with the coffins, holding on to favourites toys, clothing and photographs.
Voices which had been heard in the rubble on Thursday have fallen silent and specialist equipment can no longer detect body heat, rescuers said.
Families watching the teams who worked through the night cheered when survivors were found - including two boys found in the early hours of the morning.
But as dawn came, hopes faded. A civil protection officer, Ernesto Angelotti, told the Reuters news agency: "There's no noise.
"There are no readings from the heat detectors. The bulldozers are moving in and now, I am afraid, there is very little hope."
Click here to see a map of the affected area
Elsewhere, some of the 34 people rescued alive from the school continued to be treated for serious injuries in hospital.
In Rome, the Pope said a "heartfelt prayer" for the victims.
The BBC's David Willey, reporting from the village, said the grief in San Giuliano was overpowering, with a stunned silence replacing the shrieks and wails which accompanied the desperate search for survivors throughout the night.
But questions about why the tragedy struck are beginning to be asked.
The school - the most badly damaged building in the village - was constructed nearly 50 years ago and had a concrete second floor added recently.
It collapsed but other buildings - some of them hundreds of years old - stayed standing during Thursday's quake, which measured 5.4 on the Richter scale.
Attention is focussing on building standards, and whether the school should have opened after earlier, smaller, quakes were felt.
Italy has declared a state of emergency to ensure funding is swiftly available and to allow army participation in the rescue and recovery operations in the Molise region, where some 3,000 people have lost their homes.
Widespread damage
In the town of Campobasso, cracks gaped in walls and chunks of plaster fell from ceilings, sending people running into the streets.
Recent Italian earthquakes
1997 - 13 die and 40,000 homeless as roof of Assisi basilica collapses
1980 - 2,500 killed and 7,500 injured in Naples
A major highway bridge was damaged, a railway line was closed after a viaduct was damaged and many power and phone lines were put out of action.
Seismologists had already been monitoring the region after this week's eruption of Mount Etna in Sicily, Europe's biggest active volcano.
A quake also hit Mount Etna on Thursday, measuring 3.7 on the Richter scale. It did not appear to be connected with the tremor hitting southern Italy.
Italy has a long history of earthquakes but is continually being taken off-guard by them as the faults are hidden and difficult to observe.
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Related to this story:
Etna state of emergency declared
(30 Oct 02 | Europe)
Etna from space
(27 Jul 01 | Science/Nature)
Etna's rising anger
(29 Aug 01 | Europe)
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How earthquakes happen
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