Rescue officials said 185 bodies have been pulled from the waters some 90 kilometers off the Egyptian port of Safaga, which was to be the ship's final destination.
Rescue boats and helicopters are in the area, but have been hampered by poor weather.
The cause of the sinking is unclear but there were high winds when the vessel left Duba in western Saudi Arabia yesterday.
Reports say most of the passengers were Egyptian workers returning from Saudi Arabia, but some were believed to have been pilgrims returning from Mecca.
(AP, Reuters, dpa, AFP)