Fans largely made up of families and children were lined up on Newcastle Link Road at the Transfield Drive roundabout about 9.30am on Saturday in NSW's Hunter region when the tragedy unfolded.
Police say a car hit multiple people in the crowd, with an 18-year-old P-plate driver arrested. He was taken to hospital for mandatory testing.
NSW Police said 10 people were injured and treated at the scene before being transported to John Hunter Hospital in Newcastle.
A five-year-old girl and a 67-year-old man were initially in a critical condition, while eight other people, including a second five-year-old girl and a two-year-old girl, were in stable condition.
The young girl remains critical, while the man is now in a serious but stable condition.
The hospital provided an update to AAP on Saturday night confirming five other patients are in a stable condition and three others have been discharged.
The 18-year-old driver is expected to soon be charged, police say.
Assistant Commissioner Dave Waddell said two other people in the car were escorted from the crash scene after the crowd turned on them.
Mr Waddell said police did not believe the incident was deliberate but declined to comment on reports the vehicle was being driven erratically before the accident.
"I'll let the investigators from the crash investigation unit deal with that," he told reporters.
NSW Ambulance spokesman Tim Troon thanked bystanders who assisted responders.
"We did get a lot of bystander support during this incident, and it made our job carrying out emergency service a lot easier as a result," he told reporters.
NSW Premier Chris Minns said it was heartbreaking to see fans waving their team off involved in a terrible accident.
"We've seen how this grand final has brought Newcastle together, and I hope the whole community remains united as we continue to respond," he said in a statement.
Prime Minister Anthony Albanese said he had spoken to the premier and offered his support.
"My thoughts are with everyone injured or involved in the horrible incident this morning in Newcastle," he said.
Newcastle Knights chief executive Peter Parr expressed deep concern for those impacted.
"What was meant to be a special morning for our community, thousands of Novocastrians coming together to farewell our team and show their support ahead of the grand final, has understandably turned into a distressing morning," he said.
"Newcastle is a strong community. We have seen that strength throughout this week, and today we need to draw on it again with compassion, care and support for those who need it most."
Knights captain Kalyn Ponga shared his thoughts in an Instagram story, sending love and support to all affected on behalf of the team.
"We're thinking of you, your families and everyone in our Newcastle community," he wrote.
Australian Rugby League Commission executive chairman Peter V'landys said the commission was working with police to understand the circumstances behind the incident.
In a post on social media, federal member for Hunter Dan Repacholi cited reports of a car doing a burnout before losing control.
Newcastle Mayor Gavin Morris said the crash was particularly upsetting given the environment of positivity and support heading into the grand final.
"We've been able to come together in an extraordinary way, and I believe now we will come together again in a new way," he told ABC News.
A large crowd had lined Newcastle's streets on Saturday morning to farewell the Knights players after the elation of reaching Sunday's NRL decider against the Sydney Roosters prompted an avalanche of fan support.
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