None of the 1,167 passengers and 172 crew was seriously hurt in the dramatic pre-dawn blaze, and a rescue coordinator said only four people needed hospital treatment, mainly for smoke inhalation.
The Prinsesse Ragnhild, owned by Norway's Color Line, was on an overnight trip from Kiel, in Germany, to Oslo when fire broke out in the engine room shortly after 2 a.m.
Passengers were loaded into inflatable lifeboats and transferred to some 20 vessels, including fishing boats and another passenger ship, that rushed to the scene in response to the ferry's distress signal.
Nine helicopters from Sweden, Denmark and Norway also took part in the rescue, Sweden's national news agency TT reported.
Rescuers and passengers praised the crew for their calm and efficient handling of the emergency.
Â"The crew deserve all possible praise. They managed to keep people calm. Not even the children were crying,Â" Unni Soerensen, on a trip with her family to celebrate her parents' 46th wedding anniversary, told Norwegian news agency NTB.
Birger Knutsson of the Swedish National Maritime Administration said: Â"The calm weather was a major factor in the rescue operation going so well. The ship and crew also worked perfectly for a smooth evacuation."
Within about four hours, the fire was under control and virtually all passengers -- most of them Norwegian tourists -- were taken off. Most crew stayed on board, as did at least one passenger.
The engine room seems badly damaged and Â"looks like an ashtray,Â" long-haul truck driver Arne Slorafoss of Norway told Norway radio. He volunteered to stay aboard and help with salvage efforts.
Passengers were taken to a military base at Gothenburg while Color Line was trying to reschedule ferries in its fleet to minimize disruptions for stranded travellers.
The emergency brought back memories of a similar incident in April 1990, when 158 people died in a fire on the Danish-owned ferry Scandinavian Star in the Skagerrak Strait between Sweden, Norway and Denmark.
The worst maritime disaster in the Nordic region occurred in September 1994, when 852 people died after the Estonia ferry sank in rough seas on an overnight trip between Estonia and Sweden.
©1999 CBS Worldwide Corp. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters contributed to this report