More than 20 people were feared dead after a Kenyan ferry carrying more than 80 passengers, capsised on Sunday night following a collision with a cargo boat off the island of Lamu, a popular tourist destination.

Survivors confirmed earlier suggestions that the small ferry was overloaded when the two vessels collided in the dark at about 9pm.

The Kenya Red Cross said of the 82 passengers, seven were confirmed dead as of Sunday night, 25 had been rescued and 23 managed to swim to shore. Fifteen people pulled from the water were admitted to the hospital.

Abdalla Miraj, regional head of the Kenya Red Cross, told Reuters at least 16 people were still believed to be missing.

"We have stopped diving now because we have been told that after 24 hours the bodies will float to the surface, so at around 8pm we will all go out again and try to collect the rest," he said.

The ferry had just left Lamu at the time of the collision.

The other vessel was carrying oil drums. 

A Lamu resident said the small ferries can typically take up to about 50 passengers, but survivors said the boat was overloaded with people and baggage. Kenyans flock to the Indian Ocean coast over Christmas and New Year for holidays.

"Soon after leaving it hit another vessel and water started flowing in. I was on it with my three children and wife and luckily we were all saved," said survivor Ali Bakari.

"The boat itself was overloaded. Before it left there was a police officer who tried to stop it leaving, but the operator talked him out of it," Bakari told Reuters at the hospital, adding that neither vessel appeared to have lights. 

"All we heard was the impact," he said.

Locals lamented the fact a new water ambulance equipped with first aid facilities and oxygen tanks, donated to Kenya by an international donor, had remained moored throughout the rescue.

"There's a brand new ambulance boat with new engines but no one can use it because there is no driver and no petrol," said resident Mohamed Ali. "It has never been used because the government won't put the money towards using it. It's another tragedy for Lamu," he said.

A British tourist was shot dead and his wife kidnapped by gunmen from a beach resort north of Lamu in September. The wife is still being held hostage in Somalia. In October, gunmen seized a French woman from Lamu. She later died in Somalia.

Overloading was blamed for another ferry disaster off the Indian Ocean coast in neighbouring Tanzania in September. More than 200 people died when the MV Spice Islander sank as it sailed from Zanzibar to Pemba Island. – Reuters