"Most of the bodies were floating inside. They were trapped when the seven-story ship suddenly tilted and capsized," Philippine navy spokesman Lt. Col. Edgard Arevalo told dzBB radio.
He would not speculate on whether anyone still might be found alive - saying the ship's interior was too dark to even determine how many bodies were there - but indicated that the time since the disaster made it unlikely. Lighting was being brought in.
CBS News reporter Barnaby Lo said the rescue effort had shifted Tuesday into a search and recovery effort. Workers had drilled one hole into the ship's cabin, enabling them to bring out three bodies, but they were hesitant to drill into the ship's hull for fear of causing a major oil slick.
Philippine Vice President Noli De Castro said Monday that oil was leaking into the sea, hampering the search effort, reported Lo.
A total of 57 survivors had been located from the ferry disaster on Tuesday morning.
Arevalo said it was possible some passengers could have survived initially, but the roiling seas from Typhoon Fengshen had kept rescuers at bay too long and that suffocation may have claimed some lives.
He said that while some of the bodies had life vests, "it seems the passengers hesitated from jumping in turbulent waters" because "it happened too sudden," referring to survivors' accounts of the ship quickly listing and going down in a half-hour or less.
"(With the life vests) you will survive for a few hours, but in time, the air will run out," he added.
The bodies included what appeared to be one of the ship's officers still clutching a radio, coast guard Commodore Luis Tuason said.
"Apparently, only one compartment has been entered, the whole ship has not been searched," Tuason said, adding that two bodies had been retrieved. "It's difficult to open all compartments because they also have to think of the safety of the divers.
"If there are survivors, they could only be found in the forward portion, because if the vessel is no longer watertight, water would enter all its spaces that are submerged."
Coast guard chief Adm. Wilfredo Tamayo said about 20 coast guard and navy divers were at the scene, and that the U.S. Navy ship Stockham had arrived with frogmen and search-and-rescue helicopters.
He said the divers had broken windows and used every other gap they could find to slip inside the 23,824-ton Princess of Stars, which has only one end jutting from the water off Sibuyan island.
Arevalo said the priority now is how to extricate the bodies. He said options include attaching weights to them and then pulling them out, or cutting the hull - a prospect complicated by a cargo of bunker oil that could leak and turn the human disaster into an environmental one.
On Sunday, divers heard no response when they hammered on the hull, but officials had refused to give up.
Hundreds of people are feared to have been trapped when the ship suddenly tilted and went belly up Saturday at the height of the powerful storm that left 163 people dead in flooded communities in the central Philippines.
Only about three dozen ferry survivors have been found, including 28 who drifted at sea for more than 24 hours, first in a life raft, then in life jackets, before they were found Sunday about 80 miles to the north in eastern Quezon province.
Officials initially reported 747 passengers and crew were aboard the ferry, but said Monday that it was carrying about 100 more.
Six bodies, including those of a man and woman who had bound themselves together, have washed ashore, along with children's slippers and life jackets.
While some relatives tearfully waited for news, others angrily questioned why the ship was allowed to leave Manila late Friday for a 20-hour trip to Cebu with a typhoon approaching.
Sulpicio Lines said it sailed with coast guard approval. The government ordered the company to suspend services pending an investigation and a check of its other ships' seaworthiness.
Debate also began anew on safe-sailing rules in a country prone to storms - Fengshen was the seventh typhoon this year - and dependent on ferries to get around the sprawling archipelago.
The storm was expected to hit southeast China, an area already coping with flooding, and Taiwan with heavy rain and thunderstorms Wednesday.