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Owners of the Superferry 9 say more than 880 people have been rescued but three people have died and more than 80 are unaccounted for.
The passenger ferry was sailing off the southern Zamboanga peninsula when it began listing.
It issued a distress call, prompting the coastguard, the navy, the air force and private boats to help.
The Superferry 9
The Superferry was sailing overnight from a southern port
The Philippine defence minister, Gilberto Teodoro, told the BBC that the rescue operation had been helped by good weather and the presence of other vessels close to the site.
The Superferry 9 was said to be carrying 847 passengers and 117 crew plus four sea marshals on its journey from General Santos to Ilioilo.
A statement issued on the Superferry website said that the ship began listing to the right at 0230 on Sunday (1830 GMT Saturday).
Passengers were told to don life jackets while the captain tried to correct the list, the statement said.
When the captain determined that the list was irreversible, he gave the order to abandon ship, and life rafts were launched.
Map
The statement said that the crew were the last to leave the ship at 0842 local time, when the ferry tilted and sank.
Officials said that those rescued were transferred to navy ships, two nearby civilian vessels and other smaller boats which had responded to the Mayday call.
The Philippine air force and army have sent helicopters to help in the search for those still missing.
Admiral Wilfredo Tamayo, of the Philippine coastguard, said he hoped those unaccounted for had been rescued by a fleet of fishing vessels and small boats.
The cause of the sinking was unknown, but the weather was reported to be fair at the time of the incident.
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