The incident is especially embarrassing at a time when China seeks to build Shanghai into a global business hub on par with the likes of London, New York and Hong Kong by 2020.
On Friday afternoon, the Shanghai government issued its severest health warning as the city's pollution index ranged between 23 times and 31 times the levels recommended by international health officials.
In the first such advice since a new health warning system was launched in April, authorities urged residents to stay indoors and asked factories to either cut or halt production.
"I don't think it's fit for people to live in this kind of environment," said Shanghai resident Fan Jianjun, 34, who wore a face mask as he walked through the opaque air in the Lujiazui financial district.
"But I have no choice. I still need to work. I can only take preventive measures but I have no idea whether they work."
Air quality in cities is of increasing concern to China's stability-obsessed leaders, anxious to douse potential unrest as more affluent citizens turn against a growth-at-all-costs economic model that has polluted much of the country's air, water and soil.
The government has announced many plans to fight pollution over the years but has made little apparent progress.
Most of the flights leaving Shanghai's Pudong International Airport have been delayed, according to the airport's website. Pudong was the world's third busiest cargo airport in 2011, data from the Airports Council International shows.
Hazardous air pollution forced schools to shut or suspend outdoor activities in at least two cities in eastern China on Thursday. Some schools in Shanghai cancelled outdoor activities on Friday, as well.
The unusually noxious haze was caused by several factors, including industrial pollution and auto emissions trapped by cold, windless weather, said Xu Bin, an associate professor at Shanghai's Tongji University.
By 0700 GMT, the level of PM2.5 particulate matter, or tiny particles in the air that are the most hazardous to health, reached a "severely polluted" 466, according to the Shanghai government's monitoring website, http://www.semc.gov.cn/aqi/home/English.aspx.
A similar measure by the U.S. consulate in Shanghai showed a reading of 503, a level described as being beyond the index on its website http://www.stateair.net/web/post/1/4.html.
Levels above 300 are considered hazardous, while the World Health Organization recommends a daily level of no more than 20.
(Reporting by Shanghai newsroom; and Kazunori Takada; Editing by Clarence Fernandez)
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