The owners of the Panamanian-flagged Al-Salam Boccaccio 98 said between 300 and 400 of the more than 1,400 people on board had been rescued but police could confirm just 241 people found alive.
The official death toll stands at 185 but maritime sources said heavy seas and strong winds are complicating the work of rescue teams and hundreds more people remained unaccounted for as night fell.
The passengers, mainly Egyptians working in Gulf countries or returning from the Muslim pilgrimage to Mecca, were heading to Safaga when contact was lost.
The vessel had departed from the Saudi port of Duba, on route to the Egyptian port of Safaga, a crossing that should have taken approximately 18 hours. The boat was also reported to be carrying more than 40 vehicles.
Transport Minister Mohammed Mansur told Egyptian public television that the vessel also had 104 crew aboard. "The seas were very high and the weather was not good," he told CNN.
Immediate controversy
Some 20 hours after the ship encountered difficulties, controversy started to emerge over the 36-year-old vessel's compliance with safety regulations and
Egyptian President Hosni Mubarak demanded an immediate investigation.
The Italian firm that certified the ship's seaworthiness is facing prosecution in France for allegedly failing to carry out proper checks on a Maltese-flagged tanker, Erika, which broke up off the coast of France six years ago.
With mystery still swirling over the cause of the accident, President Mubarak swiftly cast doubt on the seaworthiness of the vessel.
"The speed at which the ship sank and the fact there were not enough life rafts on board confirm that there was a (safety) problem but we cannot anticipate the results of the investigation," a spokesman for President Mubarak, Suleiman Awad told public television.
There was no indication that the sinking was the result of an attack or a collision with another ship.
A spokesman for the Italian firm RINA which was in charge of inspecting the vessel told AFP that his company was ready to cooperate with investigators.
Andrea Odone, from the operations department of the Al-Salam Maritime Transport company's Cairo headquarters, told AFP that the ship complied with all regulations governing seaworthiness.
"It met all the safety requirements, and it fully complies with international safety rules," he said.
According to a French-based shipping expert Yvan Perchoc, the Al-Salam Boccaccio 98 was one of several old Italian ferries to which extra decks had been added in order to boost passenger capacity, sometimes threefold.
"Despite the addition of extra bulges on the sides of these ships, one can wonder about their stability," he told AFP, adding that the draught of such vessels was generally very low.
Anxious relatives
Relatives of missing passengers gathered at Safaga port, anxiously awaiting news of their loved ones.
"Nobody is telling anything, it's unbearable," said Said Ali Said, who rushed from southern Egypt to inquire about the fate of his cousin who worked in Kuwait. "Just tell me if he is dead or alive."
Gathered in an area on the edge of the port dubbed "the pilgrims' village" and initially designed for passengers returning from Mecca, families listened to officials reading out the names of the passengers.
"I spoke to my nephew last night when he was still in Saudi Arabia. We came from Sohag in southern Egypt to find out what the situation was but we have no information for the moment," Abdelazem Mohammed Mahmud told AFP.
Like many Egyptians, his nephew and cousin had found better paid jobs as construction workers in Kuwait and were returning to Egypt to see their family.