The signal failure meant trains on Line 10 were being directed via phone by subway staff instead of electronic signals and thus were running at lower speeds, Shanghai Shentong Metro Group said in a statement. That line opened last year and is one of the city's newest.
At least 271 people were hurt, none seriously, said Xu Jiangguang, head of the city's health bureau. Some of the injured were carried away on stretchers, however, and 30 were being kept overnight for observation.
"This is the darkest day ever for the Shanghai subway. Regardless of the cause or responsibility, we are stricken with remorse for having caused our passengers injury and losses," the company said in an apology posted on its blog. "We want to deeply, deeply apologize."
The signal system is a product of Casco Signal Ltd., a joint venture of China Railway Signal and Communication Corp. and Alstom, which reportedly supplies signal systems to a number of subways in Chinese cities including Beijing, Shanghai, Tianjin and Shenzhen.
Casco was blamed for a subway train crash in Shanghai in 2009, and it was the supplier of a centralized traffic control system for a railway in east China's Zhejiang Province where two bullet trains crashed on July 23, killing 40 people and injuring 177.
That accident exposed festering resentments over the huge costs of the country's massive buildup of its rail system, especially its high-speed lines.
Authorities have not yet disclosed the results of an investigation into the cause of that accident, though state media cited experts as saying signaling equipment was a key factor.
In Tuesday's accident, the trains were relatively crowded when they crashed at midafternoon. Photos posted online by passengers showed some of the injured covered in blood and crouching or lying on the floor of the train.
Firefighters helped evacuate the approximately 500 passengers on the trains, taking them out through emergency exits and walking them through the subway tunnel.
The crash snarled downtown traffic as police blocked roads to clear the way for ambulances, and hundreds of gawkers gathered to watch as passengers were escorted from the subway.
Shanghai, a city of 23 million, has rapidly expanded its subways in recent years and some lines have had problems with windows shattering, doors not opening properly and trains stopping suddenly or in the wrong spots along platforms.
Tuesday's was the third system failure in two months on Line 10. It is among several opened last year that were built hastily ahead of the 2010 World Expo, which brought more than 72 million visitors to the city.