Rescued passengers said the ship began to careen to the port side after making a banging sound on the bow.
The ferry went off the pre-arranged sea route as it departed some two and a half hours later than scheduled due to a thick fog.
The vice minister said 350 more rescuers were dispatched to the scene to help search for the 293 missing people, some of whom were feared to be trapped inside the sunken vessel.
The ship departed from South Korea's western port city of Incheon Tuesday night and was heading for the southern resort island of Jeju.
After receiving the distress signal, the South Korean authorities dispatched 72 rescue ships and 18 helicopters to the scene for rescue operations.
According to an earlier report, 471 people were on board the ship and 190 people rescued till 10:20 a.m.
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