The ferry departed Surabaya on Saturday at 10.13am local time, according to its operator, PT Virgo Yoel Rihi, which reported the loss of contact.
The Search and Rescue Office in Banjarmasin said it received a report that the vessel had suffered a communication failure. Its last known position was about 92 miles (148km) from a pier.
Contact with the ferry was lost at around 02:00 local time on Sunday, with the search and rescue office receiving the report about two hours later.
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The vessel was last reported to be about 150km south of Banjarmasin.
Ships and helicopter join search
A rescue team was dispatched to Banjarmasin's Basirih Search and Rescue pier, while a rescue ship headed towards the ferry's estimated last known position. A helicopter has also been deployed as part of the search.
I Putu Sudayana, who heads the search and rescue office, said authorities were mobilising all available personnel and assets because of the large number of people on board.
The agency is coordinating with maritime authorities and other relevant agencies, while also monitoring weather conditions, he said.
Other vessels in the area have been alerted and asked to report any signs of passengers.
The search for those still unaccounted for is continuing.
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Ferry accidents remain a concern
The incident comes a month after another ferry caught fire off Madura island, just across from Surabaya, killing five people, Sky news reported.
Indonesia is an archipelago of around 17,000 islands, making ferries an important part of the country's transport network. Sea routes are often more affordable and accessible than air travel.
However, safety standards are not always strictly enforced, contributing to a relatively high accident rate.