Officials denied reports that a seven-year-old boy was pulled alive from the wreckage almost 24 hours after the quake struck.
At least 28 people were killed in the small farming town of San Giuliano Di Puglia, nearly all of them young pupils at the school.
Rescuers used cranes, sledgehammers, blowtorches and t heir bare hands to search desperately for survivors. At least two more children were believed to be trapped and feared dead under the rubble.
Two strong aftershocks, with magnitudes of 3.5 and 3.0, rocked the town as the emergency crews worked yesterday but there were no further casualties.
The death toll had mounted quickly after midnight. Officials said yesterday 26 people were confirmed dead 23 children in the school, a teacher and two women in nearby homes.
Earlier reports said a seven-year-old boy was pulled alive from the rubble, but officials later said the child was lifeless when his body was recovered.
One of the latest victims brought out was the teacher, a woman whose corpse was wrapped in a blanket and carried away to an ambulance.
A rescue worker, in hard hat and covered with dust, said most of the dead children were crushed at their desks as the roof crashed down upon them.
"A huge tragedy leaves us with only one certainty. It looks like the first grade class was wiped out," said a local priest, the Rev Ferdinando Manna.
The school complex had nursery, elementary and middle school students.
At dawn, emergency crews halted work for a few minutes in a bid to hear any sounds under the rubble, but there was just silence.
A nine-year-old boy identified only as Angelo was rescued at 3:54am, the last person to be brought out alive.
"We are still clinging to any thread of hope," national fire chief Mario Morcone said at the scene.
Pope John Paul expressed his "spiritual closeness" for those suffering from the quake and offered prayers for the victims and encouragement to survivors and the rescue crews.
The bodies of the dead were taken to a makeshift morgue at the town's sports centre, where relatives came to identify them. The 5.4-magnitude quake hit the Campobasso area 100 km northeast of Naples in the Molise region at 11:33am on Thursday.
San Giuliano di Puglia, a village of about 1,195 people, was the hardest hit, with several buildings damaged. The ANSA news agency said 3,000 people in the region were left homeless, unable or unwilling to sleep in their damaged homes.
The yellow nursery school in San Giuliano di Puglia collapsed entirely on itself, trapping 56 children, their teachers and two janitors inside as they celebrated Halloween, which is becoming increasingly popular in Italy.
Anguished parents kept a vigil outside the wreckage, bundled in blankets to guard against the evening chill, with temperatures around 11C (52F).
Applause burst from the tense crowd after one difficult rescue. Residents cried, "Giovanni! Giovanni!" when the little boy was brought out on a stretcher. "As soon as he came out he called me 'Papi' like he always does," the boy's father told RAI state television, which did not give the man's name.
"I immediately saw he was in good condition. He told me there are many other children still alive, a little shocked but still alive, so the hope is still there that they can save more."
"I thank God for this gift he has given me," he said.
One girl named Lilia told Italian television from her hospital bed, where she had her left hand in a small cast, that the children were drawing Pinocchio pictures, getting ready for their Halloween party, when the quake struck.
"I heard it crumble, and we screamed," she said. She said she had not heard news of her friend Melissa. "She wasn't near me. I didn't even hear her voice. I don't know if she's still alive."
Clementina Simone, who was pulled out of the rubble, said she was teaching a geography lesson about this week's earthquakes near erupting Mount Etna in Sicily when the earth shook in San Giuliano di Puglia.
"I was told I had lost all of my nine first grade pupils," said Simone. "I wanted to go back and help, but the rescuers wouldn't let me."
She recalled her terrifying fight for survival: "I was holding the hand of a little boy who was saved with me," she said. "A large piece of concrete was hanging over my head and rescuers used an inflatable bag to move it."
Emergency crews later pulled one more body from the rubble, bringing the death toll to at least 28.