The captain of the ferry M V Thomas Aquinas ordered the ship abandoned after it began listing and then sank after hitting the cargo vessel, coast guard officer Joy Villegas said.
She said at least five people were confirmed dead, more than 250 rescued and authorities were still checking the number of others who had been taken to hospitals.
Two coast guard vessels and other nearby ships were involved in the rescue operation not far from the port of Cebu, Villegas said.
"It seems some were not able to get out. I pity the children. We saw dead bodies on the side, and some being rescued," he said.
He said the ferry was entering the pier when the cargo vessel, which was on the way out, suddenly collided with it. He said he and other passengers jumped in front of the cargo vessel.
"One of the persons who jumped with us hit his head on metal. He is shaking and he is bloodied," Agudong said.
He said the ferry came from Nasipit in Agusan del Sur province in the southern Philippines on a daylong journey.
Accidents at sea are common in the Philippine archipelago because of frequent storms, badly maintained boats and weak enforcement of safety regulations.
In 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.
In 2008, the ferry MV Princess of the Stars capsized during a typhoon in the central Philippines, killing nearly 800 people.
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