Hong Kong's environmental protection department said local air pollution indices soared to levels of around 500, smashing the previous record of 202 recorded in July 2008. A reading above 51 is considered high.
Sandstorms from northern China were mostly blamed. People with heart and lung diseases were urged to avoid outdoor activities amid what were described as "severe" readings.
Experts are studying the contents of the latest smog but a public health academic warned it came after a week of serious air pollution.
"We don't know what this air is made of . . . but it is possible that it is not as toxic as the air that is coming out of the tailpipes of old trucks in Hong Kong or old power station chimneys, or ship funnels going into the harbour and the port," said Anthony Hedley, chair professor of the School of Public Health at the University of Hong Kong.
"The interesting thing may be that it is coming on top of several days of fairly intense exposure to mostly Hong Kong-made pollutants and some other of parts of the Pearl River Delta," Hedley told Reuters.
Pollutants included particulates, nitrogen dioxide, sulphur dioxide and ozone.
"Most of us will have some chronic inflammatory response to that exposure and without question it will make us (more susceptible) to the present episode," Hedley said.
Hong Kong's patchy air quality has been a controversial social issue in recent years, tarnishing the city's reputation as a financial hub versus greener rival cities like Singapore. It has also affected the health of many of its citizens.
According to the Hedley Environmental Index, which monitors and publishes in real-time the economic costs of Hong Kong's air pollution, the bad air would have resulted in 175 premature deaths and 1.29 million visits to the doctor so far this year.
It would also have resulted in an estimated loss of HK$394 million in health care costs and lost productivity.
While officials have strived to clean up vehicles and power stations locally, pollutants blown in from tens of thousands of factories in southern China's manufacturing and export hub of the Pearl River Delta have also had a serious impact on air quality.
The haze may clear up in coming days, however, according to the city's weather observatory, with the Hong Kong Sevens rugby tournament due to kick off on Friday.
Some 120,000 visitors are expected to attend the event, a major tourism draw for the former British colony that returned to Chinese rule in 1997.
Officials in Hong Kong and neighbouring Guangdong province have set aggressive air pollution reduction targets, although green groups say much more needs to be done.
Hong Kong aims to reduce its energy intensity by at least 25 per cent by 2030, and has promoted the use of clean fuels and improved energy efficiency to reduce carbon emissions.
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