The Operations Manager of Papua New Guinea's National Maritime Safety Authority has confirmed the sinking of the ferry, the MV Rabaul Queen, in the Huon Gulf this morning.
The boat was travelling between Lae and Kimbe when Australian authorities received a distress signal around 7:00AM local time.
Captain Nurur Rahman says details about how many people were on board are not yet available but that the vessel has a capacity of around 300.
Captain Rahman says the NMSA is co-ordinating the rescue effort with help from four merchant vessels that were in the vicinity which have picked up at least 28 survivors.
"We have now sent PNG boats around there to pick up survivors from those boats. They've left Lae and they will probably arrive at the scene around 5 to 6 o'clock local time."
Captain Nurur Rahman
The National Disaster Centre reported that two helicopters and a ship had been dispatched to join the two search and rescue vessels sent out by the NMSA.
The ship's owners, Rabaul Shipping, told Reuters it had no information what caused the accident, adding the vessel sank quickly and without sending a distress message.
In a statement, the company said there is no sign of the Rabaul Queen.