In the latest disaster to hit the nation's notoriously dangerous sea transport industry, the ferry mysteriously sank in calm weather before dawn about two kilometres from Burias island.
Fishermen on small outrigger motorboats were among the first to arrive on the scene and saved many lives, said local coastguard deputy chief Bayani Belisario.
"They (the passengers) were floating in their life jackets and the rescuers picked them out of the water," Belisario told AFP.
A navy plane and a coastguard ship, diverted from taking part in maritime exercises in Indonesia, joined the search and 55 people were rescued throughout the morning, according to the authorities.
But Belisario said the bodies of two women were recovered from the water.
The ferry's manifest listed 35 passengers and 22 crew aboard but local civil defence chief Raffy Alejandro said there could be as many as seven people still missing.
Seven drivers and assistants who brought two buses and a truck aboard the roll-on, roll-off ferry may not have been listed because they travelled for free, Alejandro told AFP.
"He said it happened so quickly. It just went down in the darkness," Alejandro said, adding the waters and weather were calm.
The type of roll-on, roll-off ferry that sank is commonly used in the Philippines to transport people, vehicles and cargo throughout the archipelago of more than 7,100 islands.
Alejandro said the ferry, the MV Lady of Mount Carmel, was not believed to have been overloaded as it sought to make its regular journey of about four hours between the two major provinces of Albay and Masbate, more than 300 kilometres southeast of Manila.
Sea accidents are common in the Philippines due to poor safety standards and overloading.
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