The coast guard is due to start an investigation in coming days into why the Superferry 9, carrying 968 passengers, turned on its side 15km off Zamboanga del Norte province.
The ferry was midway into its journey between the southern port city of General Santos and Iloilo city in the central Philippines when it ran into problems early on Sunday morning.
According to Admiral Wilfredo Tamayo, the Philippine coast guard chief, the vessel's violent listing awoke frightened passengers and sent dozens jumping in the darkness into the water.
Reymark Belgira, a passenger, said many panicked as the huge ferry listed, with parents tossing children to people on life rafts below.
|Search operations continued through the night in the hope of finding survivors [Reuters]
"I held on to the ferry for hours until day break. I couldn't jump into the water in the dark."
Gilbert Teodoro, the Philippines defence secretary, said two men and a child drowned during the scramble to escape the ship.
Roger Cinciron, a passenger, said he felt the ferry tilting at about midnight and was assured by a crew member that all was well.
But two hours later he was awoken by the sound of crashing cargo below his cabin, he told DZMM radio.
"People began to panic because the ship was really tilting," he said as he waited for rescuers to save him and a group of more than 20 other passengers.
Al Jazeera's Manila correspondent, Marga Ortigas, said investigators had yet to offer any initial reports on what might have caused the listing.
|Hundreds of survivors were transferred to other ships in the area [AFP]
However she said accounts from some witnesses had led to speculation that some cargo on the ferry may have come loose, somehow puncturing the hull.
Jess Supan, vice-president of Aboitiz Transport System which owns the ferry, said the captain initially ordered everyone on board to abandon ship as a precautionary step.
The country's National Disaster Coordinating Council said there were reports that the 7,268-tonne vessel listed to the right because of a hole in the hull.
Sea disasters are common in the Philippine archipelago because of bad weather, badly maintained boats and weak enforcement of safety regulations.
Last year, a ferry overturned after sailing toward a powerful typhoon in the central Philippines, killing more than 800 people on board.
In December 1987, the ferry Dona Paz sank after colliding with a fuel tanker in the Philippines, killing more than 4,341 people in the world's worst peacetime maritime disaster.