UPDATED 9.38AM: The quick actions of a crewman helped save passengers on board a White Island ferry that went up in flames yesterday afternoon.

Fifty-three passengers and seven crew were rescued when the PeeJay V - the largest of the White Island tour boats - caught fire on its way in to Whakatane yesterday. Just two people had minor injuries - one person had smoke inhalation, and another had some chest pain from jumping into the water.

The boat was nearing the Whakatane river bar yesterday afternoon when a crewman felt some heat coming from the engine room.

Owner Peter Tait raised the alarm and sent for help before the crew started moving passengers to the bow of the boat.

He and his son were first on scene, just minutes after it started, followed by the Coastguard.

"With all the help that was here, that's how we were lucky enough to get everyone off safely," he said.

White Island tour operators and crew are being praised for their quick response.

Whakatane mayor Tony Bonne says the owners, and the community are devastated by the loss of the boat, but relieved everyone was able to escape safely.

He says they're safety conscious, their staff are trained, and it went like a textbook operation.

"Small communities are very united and people relate to White Island tours as part of the family - they're devastated to see their boat go down."

A woman who watched the boat go up in flames says it was all a bit scary.

Yvonne Mahy said it took just 15 minutes from when she first saw smoke, to seeing flames engulf the vessel.

The community banded together in quite tough conditions to get the 60 people on board to safety. Mahy said visibility wasn't great, the seas were a bit rough, but the boats managed to get out there quite quickly before returning loaded up with passengers.

Investigators will today try to determine the cause of the fire. It was too dark last night for coastguard to do much more than check for any oil spill threat - but this morning they will work to find out what went wrong on the ferry, and figure out a way to get the oil off the sunken boat.