Uttar Pradesh Chief Minister Yogi Adityanath has ordered a probe into the matter by the commissioner of the Saharanpur division under which Shamli falls.
An official statement said that some 50 to 60 children were rushed to nearby hospitals for first aid.
While most of them were discharged soon, 17 were in hospital till evening for monitoring.
All of them were out of danger, it said.
According to unofficial figures, around 300 school children complained of breathing problems, nausea and a burning sensation in their eyes. Their condition, however, improved gradually.
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A case will be registered against the management of the sugar mill and orders have been issued to the district officials of Pollution Control Board to conduct an inquiry and find out the exact cause of the incident, the statement added.
Principal Secretary, Information, Awanish Awasthi told PTI, "The CM has ordered a probe into the Shamli incident by the Saharanpur Commissioner and directed the DM and all local officers to provide all possible help to the affected children."
The government is continuously monitoring the situation, Awasthi said.
Locals alleged that the sugar mill employees discharge chemicals in waste dumps leading to emission of harmful gas, inhaling which the children took ill, with some falling unconscious.