The Australian Maritime Safety Authority is reporting 219 people have been rescued and taken aboard some of the six merchant vessels that were directed to the disaster site by maritime authorities.
At least one NMSA agent is on board one of the ships to help co-ordinate the rescue.
PNG awoke yesterday to news that as many as 350 people might have perished when the ship went down as it travelled from Kimbe in New Britain to Lae, PNG's second largest city, about 8am.
PNG Prime Minister Peter O'Neill said he had received a phone call from Australian High Commissioner Ian Kemish, who pledged Australia's support.
An aircraft from Australia, three helicopters and eight ships scoured the search area.
The ABC said the ferry went down 16km off the coast of Finschhafen.
It reported that police in Kimbe say most of the passengers were students and trainee teachers.
"Our sympathies go out to the families," O'Neill said. "We need to bring some safety measures back into this industry."
However, he shied away from announcing a full investigation into the tragedy.
"We will be guided by reports that we get."
The ship went down in what's understood to be extremely bad weather.
Australian Foreign Minister Kevin Rudd said Australia stood ready to help in any way it could.
The Australian Maritime Safety Authority arranged for ships in the area to conduct rescues and for aircraft to fly over the area.
The aircraft assisted with dropping rescue equipment, including life rafts.
The Department of Foreign Affairs and Trade said the shipping company had advised them there were unlikely to be any foreigners on board.
Australian Prime Minister Julia Gillard had earlier called the incident a "major tragedy".
"Given the likely very high loss of life here, I think when this news comes to the attention of Australians around the country they will be thinking about the people of PNG as they respond to this tragedy."
Martin Mosi, director of the PNG National Disaster Centre, said it was "very difficult to say" what the cause might have been.
"Is it weather, is it overloading or is it something to do with the vessel itself? We do not know but that will certainly come to light very soon."
Star Ships, among PNG's largest passenger ship operators, runs regular services to the nation's outlying islands.
New Britain's Kimbe is a popular dive site that attracts tourists from across the world.
- Agencies
