Nearly 1,000 police officers were on duty to ensure security at the funeral, attended by Austrian President Heinz Fischer, Prime Minister Alfred Gusenbauer and government ministers.
Haider, a controversial and charismatic figure in Austrian politics who was against immigration and the European Union, died on October 11 in a car crash at age 58.
He was driving at twice the speed limit and was three times over the legal alcohol limit, according to Stefan Petzner, who succeeded him as leader of the Alliance for the Future of Austria party.
His body was taken from the offices of the province of Carinthia, of which he was governor, in the presence of his family and aides, and the procession then moved off to the city centre.
The coffin, covered in wreaths, was borne in a military vehicle.
Crowds in a sombre mood lined the route, come to mourn a leader who was hugely popular in Carinthia, which he had governed since 1999, although his policies had made him controversial abroad.
Gusenbauer was due to speak at the ceremony.
A free bus service and extra trains had been organised for the large numbers attending the funeral.
Haider grabbed international attention after the party he then led won more than a quarter of the vote in a 1999 general election and became part of the government.
For more than 20 years he was the face of Austria\’s far-right politics. While many supported his anti-immigrant, anti-EU rhetoric, to others he was a racist and opportunist.
In last month\’s general election, Haider had been part of a rebirth of the Austrian far-right against the country\’s mainstream social democrat and conservative parties.
Haider\’s Alliance for the Future of Austria party (BZOe) won 10.7 per cent of the vote while its rival far-right Freedom Party, which he once headed, garnered 17.5 per cent.
Their combined score put the parties just behind the Social Democrats, who came in first with 29.3 per cent.
Haider, 58, was doing more than twice the 70km/h speed limit when he crashed last weekend after leaving a nightclub in Carinthia province, prosecutors said.
His luxury Volkswagen Phaeton was overtaking when it smashed into a concrete post and a fire hydrant before flipping over, flattening the vehicle.
The politician died on his way to hospital after suffering severe head, chest and spinal injuries.
Haider was leaving Klagenfurt to return to his home in Baerental, south of the city, where he was to have celebrated his mother\’s 90th birthday.