LISTEN: LARRY WILLIAMS SPEAKS TO 1XX REPORTER SAM CARRAN 

UPDATED 7:20pm: Now that everyone's safe, emergency services are working out how to best manage a potential oil spill from a burning passenger ferry.

One person suffered smoke inhalation, and another got a small injury from jumping off the boat to escape the flames.

Emergency Services were called at around 3.45pm.

The 75 foot vessel was on its way back from White Island and police say around 50 or more people were on board the passenger ferry when it caught fire.

Fire Communications Shift Manager Daniel Nicholson believes everyone onboard has been rescued from the ocean by police and the Coastguard.

"Fire Service are currently in attendance assisting ambulance with passengers that have been brought back on shore from a passenger vessel on its way back from White Island that caught fire," he says.

Rotorua Daily Post reporter Katee Shanks is at the Whakatane Heads where a crowd of about 60 people has gathered.

She said the flames were overtaking the boat.

"You can see people on the bow.

"This is awful, the flames are huge and are taking over the ship."

She said there was complete shock among those who had gathered at the Heads and the boat was about 1km offshore.

St John Ambulance had just arrived and charter boats and Coastguard were being sent out.

Police Northern Communications Centre spokesman Inspector Peter Raynes said the call came in at 3.45pm that help was needed after the passenger ship got into difficulty.

He could not confirm what the trouble was but said the police's search and rescue team, Coast Guard and the Rescue Co-ordination Centre were all involved to help the passengers and crew.

A witness has described the 15 minutes it took for the White Island ferry to go up in flames.

Yvonne Mahy lives on Muriwai drive in Whakatane, and says the boats were speeding past her house out of the river mouth.

She says this was unusual, so she went out on the drive and saw black smoke coming from what she thought looked like the White Island ferry.

"By the time I walked to the end of the road which is probably 10 minutes, the back of the boat was in flames and probably 15 minutes and the whole thing was in flames - so it really was quite scary."

All 53 passengers and seven crew members on board made it ashore, and just two people taken to hospital with minor injuries and smoke inhalation.