Radio contact with the wooden-hulled vessel, carrying nearly 500 passengers and crew, was lost after its captain radioed that it was fast taking on water during a violent storm, the National Search and Rescue Agency said.
"We are sure it has sunk," said Col. Yaneman Besau, a navy base chief in Manado, capital of North Sulawesi province. "There are four ships searching, but they have found no sign of the vessel. There have been no bodies or survivors found."
Heavy seas hampered the search. The closest land is Siau island, some 40 miles to the west and about 1,440 miles northeast of Indonesia's capital, Jakarta. There were no immediate plans for an aerial search, officials said.
The boat, called the Cahaya Bahari left Tobelo on Halmahera, the main island in North Maluku province, on Wednesday afternoon and was last heard from about 1 p.m. Thursday.
The boat was on a journey of more than 200 miles to Manado from the Maluku islands, a corner of the Indonesian archipelago where violence between Muslims and Christians has killed almost 3,000 people of both faiths in the past 18 months.
About 290 of the passengers were refugees from Duma, a Christian village in the Malukus where more than 100 people were killed in an attack by Muslim fighters June 19.
After surviving the massacre, the refugees took the ship ride to be reunited with families and friends who had earlier found shelter on Sulawesi island.
Shipping disasters with large losses of life are all too frequent in Indonesia, an ethnically and religiously diverse nation of about 17,000 islands where sea transportation is vital.
Maritime standards are lax and poorly maintained vessels are often overloaded with passengers and cargo by captains eager to maximize profits.
The Cahaya Bahari was licensed to carry 250 people. The National Search and Rescue Agency said at least 492 passengers and crew were aboard, including 186 regular passengers and 16 crew members in addition to the refugees.
Waters in tropical Indonesia are warm, but hopes of finding many survivors diminished as night fell. Indonesian ships of this kind rarely come equipped with life jackets or lifeboats.
On Thursday evening, hundreds of relatives and friends of those aboard waited for news at the docks of Manado.
Since the June 19 attack on Duma, at least 71 people have been killed in Ambon, the provincial capital of the Maluku islands.
Islamic fighters say they are only standing up for the rights of Muslims who face attacks by Christians. Muslims make up about 90 percent of Indonesia's 210 million people, but Christians are in the majority in many parts of the Malukus.
President Abdurrahman Wahid, a Muslim scholar who espouses religious tolerance, declared a civil emergency Monday to give ecurity forces greater powers to crack down on sectarian gangs.
By GEOFF SPENCER