Over 100 people are missing off Papua New Guinea after a ferry carrying about 350 passengers sank.

238 people were plucked from the sea and from life rafts by 5.30pm (7.30am Irish time), about 12 hours after the MV Rabaul Queen went down, Australia's Maritime Safety Authority (AMSA) said.

Eight merchant vessels nearby have been diverted to the scene, with helicopters and Australian fixed wing aircraft also sent to help with the rescue.

The AMSA said there had been more reports of vessels sighting people in life rafts, so they are hopeful that the number of survivors will increase.

The 47-metre ship reportedly sank about 16km off Finschhafen on the South Pacific nation's north coast.

The ferry was on its way from Kimbe, a dive spot on the island of New Britain, to the mainland city of Lae.

The ship's owners, Rabaul Shipping, said they had no information about what caused the accident, adding the vessel sank quickly and without sending a distress message.

Australian Prime Minister Julia Gillard said: "This is obviously a major tragedy - 350 people on board a ship that has gone down."

"It is likely a very high loss of life here," she added.

While earlier reports had said the weather was fair, AMSA said there were winds of 40 knots (75km/h) and swells of about five metres.

Papua New Guinea Prime Minister Peter O'Neill said the government would carry out a full investigation into the disaster.

"We will leave no stone unturned. We need to bring some safety measures back into this industry," Mr O'Neill said.

"We cannot afford to continue to lose our people's lives. Sea transport is one of the most important forms of transportation in the country."

PNG, Australia's nearest neighbour, is largely undeveloped, with poor infrastructure and limited facilities despite enormous resources wealth.