Emergency services were called to Newcastle Link Rd at the Transfield Drive roundabout following reports a vehicle had hit multiple people about 9.30am on Saturday.
NSW Police said 10 people were injured and treated at the scene before being transported to John Hunter Hospital.
A five-year-old girl and a 67-year-old man are in critical condition, while eight people, including a second five-year-old girl and a two-year-old girl, are in stable condition.
The driver of the vehicle, an 18-year-old, was arrested and transferred to hospital for mandatory testing before being taken to a police station where he is expected to be charged.
NSW Police Assistant Commissioner Dave Waddell told reporters two other people in the car were escorted from the 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 said.
NSW Ambulance spokesman Tim Troon thanked bystanders who assisted responders following the incident.
"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.
Newcastle Link Rd was closed in both directions following the incident, with the Newcastle Knights bus diverted via an alternate route.
Police reopened the road to traffic on Saturday afternoon.
NSW Premier Chris Minns said it was heartbreaking to see fans waving their team off involved in a terrible accident.
"My thoughts are with the families and friends of loved ones who have been involved or injured in the crash," he said in a statement.
"We've seen how this grand final has brought Newcastle together, and I hope the whole community remains united as we continue to respond."
Mr Minns thanked emergency services responding to the tragedy and urged people to drive safely.
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 in a statement.
The Newcastle Knights said they were aware of the incident.
"Our thoughts are with everyone impacted by the incident, including those at the scene and their families," the club said in a statement.
It said it would not comment further as the incident was a matter for NSW Police.
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 in a statement 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.
"It's obviously shifted the entire mood, but we'll get through this."
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 prompted an avalanche of fan support.
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