"Most of the bodies were floating inside. They were trapped when the seven-story ship suddenly tilted and capsized," he told dzBB radio.
Arevalo said it was possible some passengers could have survived initially, but the roiling seas had kept rescuers at bay too long and suffocation may have claimed some lives.
He said some of the bodies had life vests but many passengers apparently hesitated to jump into the "turbulent waters" before the ship capsized because "it happened too sudden." Survivors said the ship listed and went down in a half-hour or less.
Coast guard chief Adm. Wilfredo Tamayo said about 20 coast guard and navy divers were at the scene and were expected to be joined soon by frogmen from a U.S. Navy ship coming from Guam.
He said the divers had broken windows and used every other gap they could find to get inside the 23,824-ton Princess of Stars, which has only one end jutting from the water off Sibuyan island.
Arevalo said the priority was to extricate the bodies. He said options included 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 continued to dump rain on Luzon island and generate strong winds Monday as it headed toward China and Taiwan.
--- Associated Press Writers Teresa Cerojano, Jim Gomez and Bullit Marquez contributed to this report.
(Copyright 2008 by The Associated Press. All Rights Reserved.) AP-NY-06-24-08 0011EDT
