The captain of the ship reported the fire - off Madura island - as the vessel sailed from the country's second-largest city, Surabaya in East Java, to Makassar in South Sulawesi, according to Basarnas, the National Search and Rescue Agency.
Footage played by local Indonesian news outlet iNews shows large numbers of people in life jackets on what appears to be a lifeboat.
Other clips show people climbing down from the ferry that has flames and plumes of smoke coming from the top of the vessel.
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