'System.OutOfMemoryException' was thrown when there is still plenty of memory free

You may want to read this: "“Out Of Memory” Does Not Refer to Physical Memory" by Eric Lippert.

In short, and very simplified, "Out of memory" does not really mean that the amount of available memory is too small. The most common reason is that within the current address space, there is no contiguous portion of memory that is large enough to serve the wanted allocation. If you have 100 blocks, each 4 MB large, that is not going to help you when you need one 5 MB block.

Key Points:

• the data storage that we call “process memory” is in my opinion best visualized as a massive file on disk.
• RAM can be seen as merely a performance optimization
• Total amount of virtual memory your program consumes is really not hugely relevant to its performance
• "running out of RAM" seldom results in an “out of memory” error. Instead of an error, it results in bad performance because the full cost of the fact that storage is actually on disk suddenly becomes relevant.

Check that you are building a 64-bit process, and not a 32-bit one, which is the default compilation mode of Visual Studio. To do this, right click on your project, Properties -> Build -> platform target : x64. As any 32-bit process, Visual Studio applications compiled in 32-bit have a virtual memory limit of 2GB.

64-bit processes do not have this limitation, as they use 64-bit pointers, so their theoretical maximum address space (the size of their virtual memory) is 16 exabytes (2^64). In reality, Windows x64 limits the virtual memory of processes to 8TB. The solution to the memory limit problem is then to compile in 64-bit.

However, object’s size in Visual Studio is still limited to 2GB, by default. You will be able to create several arrays whose combined size will be greater than 2GB, but you cannot by default create arrays bigger than 2GB. Hopefully, if you still want to create arrays bigger than 2GB, you can do it by adding the following code to you app.config file:

<configuration>
  <runtime>
    <gcAllowVeryLargeObjects enabled="true" />
  </runtime>
</configuration>

You don't have a continuous block of memory in order to allocate 762MB, your memory is fragmented and the allocator cannot find a big enough hole to allocate the needed memory.

1. You can try to work with /3GB (as others had suggested)
2. Or switch to 64 bit OS.
3. Or modify the algorithm so it will not need a big chunk of memory. maybe allocate a few smaller (relatively) chunks of memory.