Initial estimates suggested that the MV Nyerere was carrying more than 300 people when it went down, just a few metres from the dock on Ukerewe, the lake's biggest island, which is part of Tanzania.
Tanzania has a history of dangerously overcrowded vessels.
Reports varied but the ferry may have carried between 400 and 500 people, local media said.
Mwanza governor John Mongella had earlier said the number of survivors was 40, but it was unclear whether any new survivors had been found since rescue operations resumed with police and army divers on Friday morning.
Shortly earlier, authorities said at least 86 people were confirmed dead.
The Tanzania Electrical, Mechanical and Electronics Services Agency, which is in charge of maintaining the country's ferries, said that hundreds of people are still missing and called for patience.
The government says the passenger ferry MV Nyerere was traveling between Ukara and Bugolora on Thursday when it sank.
The boat had a capacity of 100 but it is still unknown how many people were on board.
"We pray to God to give us hope in such an accident", Regional Commissioner Adam Malima told reporters.
President John Magafuli has sent his condolences to the victims.
Tanzania has seen a number of nautical disasters, with overcrowding often playing a role.
The country has been faced with similar tragedies in the past, with at least 145 people dying in a ferry disaster in the semi-autonomous archipelago of Zanzibar in the Indian Ocean in 2012.
However, hopes were fading for more people to be pulled out of the water alive.
In 1996 around 900 people died when the MV Bukoba capsized on the lake.
Journalist Daniel Kijo has the latest on the ferry accident from Tanzania's Dar es Salaam.