An explosion on board a ferry carrying tourists between the Indonesian islands of Bali and Lombok has killed a German woman and injured several others.

Britons were among the 35 people on board the Gili Cat II ferry when the explosion took place 200m from the Bali mainland.

A German tourist died in the blast, police said, while early unconfirmed reports suggested there were in fact two victims of Dutch and Indonesian nationality.

Local police spokesperson Made Sudana told Associated Press that 13 people had been injured in the explosion, which appeared to be caused by an engine fault.

“It seems there was some sort of explosion on the boat, so there was an emergency with the engine,” she said.

The boat was on its way to the Gili Islands, a popular tourist destination due to their warm seas and long, white beaches.

Police investigators examine the Gili Cat 2 boat following an explosion while it was enroute to nearby island of Lombok (Associated Press)

Regional police chief Sugeng Sudarso told the Sydney Morning Herald all causes of the blast were being considered, with a forensics team and bomb squad investigating the incident.

However, the ferry's captain had noticed the engine smoking before the fuel tank blew up, he said.

Aerial view of the Gili islands in Indonesia (Getty Images / iStockphoto)

“One of the passengers died from bad injuries after being hit by boat debris that also caused injuries in others,” Mr Sudarso told reporters.

Graphic images of one unidentified female passenger with severe injuries were posted on social media, in which it appeared she had lost her feet in the blast.

Police are questioning the boat's captain after the explosion, which took place at around 9:30 local time close to Padang Bai harbour on the east coast of Bali.

Tourists on board included Australian, Korean, British, French, and German citizens, according to media.

The Gili Cat and its sister boat Gili Cat II are high-speed boats marketed to tourists which take people from the Bali mainland to the Gili islands.

They are about five times the price of the regular ferry, but much faster, making them a popular option for tourists having a quick stay on the islands.

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The Foreign Office has said it is assisting British holidaymakers affected by the incident.

Bali and neighbouring Lombok are two of Indonesia's most popular holiday destinations, with 1.5 million foreign tourists visiting Bali in the first five months of 2015, according to Indonesia Investments.

A spokesperson for gilibookings.com, a Europe-based agency for fast ferry bookings in Bali, told the Independent Gili Cat have "long held a reputation of good service and safety standards".

"We are treating this news with the utmost priority and are monitoring the situation closely as it unfolds, from our headquarters in Europe," they said.

"As an independent ticket comparison service, we seek to feature only the most reputable boat companies that we can find in the different worldwide regions that we operate.

"Gili Cat have long held a reputation of good service and safety standards, holding the valid Indonesian government issued licenses needed to operate, and carrying the necessary equipment on board to deal with inherent but unlikely risks."