The vessel from Surat Thani province was about to arrive at Koh Tao when a passenger suddenly heard a crackling sound and smelt smoke.

Maitree Promjampa said he saw billowing smoke and fire less than five minutes later, and that was when people started shouting and raised the alarm.

"We could barely get the life vests in time," he told the Associated Press news agency.

"It was chaotic. People were weeping."

All 108 people on board - of which 97 were passengers - were safe, officials said in a post on Facebook.

The province's public relations department posted that everyone was rescued with no casualties.

Footage showed huge plumes of black smoke billowing from the ferry - with vehicles and families including young children on board - and several boats going to their rescue.

People could be seen hurrying out of the ferry's cabin while putting on life jackets, as thick black smoke swept across the vessel and it became engulfed in flames.

Mr Promjampa, a Surat Thani resident who often travels to Koh Tao for work, said people had to jump into the sea because the boats could not get close enough for fear of explosions.

"Everyone had to help themselves," he said.

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The blaze was eventually brought under control.

It started in the engine room, but the cause is being investigated, officials said.

The ferry - which is used by commuters and tourists - did not sink.