Hussain was 84.
He was suffering from blood cancer for the past one year and his condition deteriorated on Friday.
He breathed his last yesterday at his Lahore residence.
Hussai, whose real name was Mohammad Khan, is survived by his wife, a son and a daughter.
Besides 'Udas Naslain' - considered a masterpiece of Urdu literature, he will be remembered for his other famous novels - 'Baagh', 'Nadaar Loag' - and short stories 'Faraib and Nashaib'.
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President Mamnoon Hussain and Prime Minister Nawaz Sharif expressed deep grief and sorrow over his death that they described as a loss to the nation.
Born on August 14, 1931 in Gujrat, Hussain did his schooling and also graduation from Zameendar College in the city.
Riaz Ahmed, son of famous Urdu writer Nazir Ahmed, said his father had published 'Udas Naslain' at his publishing house Naya Idara in 1962.
"When a young man (Hussain) came to my father and requested him to publish his novel, he gave the novel to his friend Sheikh Salahuddin to see whether it was worth publishing. After a week, Sheikh Salahuddin told my father that the novel should be published immediately because after D H Lawrence's death, not even in Europe such a novel had been written," Ahmed said.
Hussain was given Prime Minister's Lifetime Achievement Award this year.
His funeral took place yesterday and was attended by a large number of literary luminaries, friends and relatives.