Video: Mirinda Bot
Marine Police said they received a report at 4pm from a speedboat that a "cargo boat" was on fire near the island, and they had sent fast patrol boat No 814 to see what could be done to help those on board.
Witnesses reported they could see a pall of black smoke climbing straight into the sky.
One reported that she had seen people in the water clinging to chunks of plastic foam. So far there is no confirmation of this, and it is not known how many people were on board at the time.
The Tanakon is described as a privately owned 23.5-metre inshore cargo boat with twin diesel engines, used to carry goods between Ranong and Satun.
Registered in Phuket, it is owned by a Mr Dalan Paekamon and has a crew of five. The captain is Sompong Maigaeo.
The boat was carrying cars and motorcycles from the pier on Koh Yao to Bang Rong Pier when it caught fire. Because of its wooden construction, the two-deck vessel was swiftly engulfed by flames.
The crew jumped overboard and were all picked up safely by a passing boat.
Additional reporting by Suthicha Sirirat.