"So far, 368 have been rescued," Lee Gyeong-Og, the vice minister of security and public administration, told a press briefing in Seoul.
Officials voiced concern over the fate of the 107 people unaccounted for, fearing that many may have been trapped as the vessel listed sharply and capsized within two hours of sending a distress signal at 9:00am (0000 GMT).
Dramatic television aerial footage showed terrified passengers wearing life jackets clambering into inflatable boats as water lapped over the rails of the vessel as it sank.
Of the 448 passengers on board the ferry which had been bound for the popular southern resort island of Jeju, 324 were students travelling with 14 teachers from a high school in Ansan, just south of Seoul.
Lee's ministry said two people had been confirmed dead, including one male student and one female crew member.
Many appeared to have been rescued by fishing and other commercial vessels who were first on the scene before a flotilla of coastguard and navy ships arrived, backed by helicopters.
"There is so much mud in the sea water and the visibility is very low," he added.
The 6,825-tonne ferry, which had sailed out of the western port of Incheon on Tuesday evening, ran into trouble some 20 kilometres off the southern island of Byungpoong.
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