Footage shows smoke rising from the vessel, named Mutiara Timur I, as the worrying incident unfolds.
Passengers in life jackets can be seen gathered on the deck while rescue boats worked to evacuate them.
As many as 236 passengers and 35 crew members were on board when it caught fire in the Bali Strait, about 1.5km from Karangasem beach.
There were no immediate reports of injuries, Bali’s search and rescue agency said.
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