The passengers of the stricken vessel had been on their way to watch a fireworks display in Hong Kong harbour when their boat collided with another ferry.
More than 120 passengers and crew were on the ship, which went down off Lamma Island, sparking a major rescue operation.
Officials say 28 people were pronounced dead at the scene while a further eight died in hospital.
Hong Kong chief Leung Chun-ying said the government had mobilised all its resources to respond to the accident.
“Government divers have entered the submerged portion of the boat to rescue survivors, passengers or crew members.
"We will investigate this incident, we must understand the reason for this incident,” he told reporters.
The 124 passengers aboard the sunken vessel were employees of local power company Hong Kong Electric who were on a company outing.
It was hit by a passenger ferry that regularly travels the 40-minute route between Hong Kong’s Central District and Lamma Island.
