A new spectral-spatial method for hyperspectral data classification is proposed. For a given hyperspectral image, probabilistic pixelwise classification is first applied. Then, hierarchical step-wise optimization algorithm is performed, by iteratively merging neighboring regions with the smallest Dissimilarity Criterion (DC) and recomputing class labels for new regions. The DC is computed by comparing region mean vectors, class labels and a number of pixels in the two regions under consideration. The algorithm is converged when all the pixels get involved in the region merging procedure. Experimental results are presented on two hyperspectral remote sensing images acquired by the AVIRIS and ROSIS sensors. The proposed approach improves classification accuracies and provides maps with more homogeneous regions, when compared to previously proposed classification techniques.