Reduce size of hex file to fit into on chip memory

Please explain better your problem.

Do you mean you can't fit your code into the memory or do you simply want the hex file size reduced?

The latter would be a false problem. Infact the hex file is meant to be used by Quartus to initialize the memory with your application code upon fpga configuration. The size of this file will be always the same, namely the size of the memory to be initialized.

If you reduce the code size you'll simply have more zeros (or 0xFF ?) in the final part of the file.