Government sources said 40 were confirmed dead but there were more than 200 people "feared drowned" as rescue operations continued.
John Mongella, the commissioner of Mwanza, said 37 people have been rescued after Thursday's capsizing.
An eyewitness told this paper that more than 20 people were rescued by fishermen immediately after the accident occurred. He feared "a significant number have lost their lives".
Rescue efforts have been halted until dawn on Friday.More news: Tom Thibodeau Doesn’t Want Rebuilding Pieces In A Jimmy Butler Trade
The MV Nyerere ferry capsized just metres from the dock on the island of Ukerewe, between the islands of Ukora and Bugolora, on Thursday afternoon.
Local media, however, reported that six people had died.
A spokeswoman for Tanzania's national ferry services operator TEMESA said mechanical issues were not to blame and the firm had carried out maintenance on the ferry in recent months, overhauling two engines.
The ferry which plies Bugorora to Ukara island route in Mwanza Province is said to have sunk with over 100 people aboard.More news: Nintendo Switch games just got a huge advantage for multi-console owners
Waters in the lake can be rough and boats are frequently poorly maintained, while ferry operators often fail to record the number of passengers on board.
Capsizes are not uncommon in the massive lake, and the number of fatalities is often high due to a shortage of life jackets and the fact that many people in the region can not swim.
In 1996, a ferry tragedy in the same area of Lake Victoria killed at least 500 people.More news: North Korea’s offer of concessions comes with a catch for US