Rescuers on Monday searched for three people missing after a ferry caught fire in Malaysia and sank, killing four people and traumatising survivors who watched loved ones drown.

The government has ordered an enquiry into the blaze that erupted Saturday on the "Seagull Express," an ageing and unlicensed vessel, as it headed to the tourist island of Pulau Tioman with 106 people on board.

Authorities recovered the bodies of four people, all Malaysians, but three others were missing, the official Bernama news agency said.

Fishing and tourist boats helped pluck the remaining 96 passengers and three crew members from the sea.

Initial investigations indicated engine trouble was the cause of the blaze, police said.

Survivors told of having to hurl their children into the sea as the cabin filled with thick, black smoke. They said many passengers could not swim and were unable to find life jackets.

Li Chin, whose parents drowned, said she was powerless to help them as they sank under the water just metres (feet) away from her.

"My mother was unconscious when going underwater and I was unable to do anything although she was so close," the 23-year-old told The Star daily.

Choong Zi Wei, 17, said she could not forget the face of an elderly woman who tried to cling to her in the chaos.

"She kept pulling me down into the water each time she grabbed my hair but we got separated. I just couldn't help her," she told The Star daily.

The government enquiry will set out to determine the cause of the fire, whether the operator followed safety standards and whether the crew had done its best to save passengers.