Jason Card, a spokesman for the provincial Transportation Department, said the MV Northern Ranger remained docked in Happy Valley-Goose Bay.
Its passengers were staying in cabins aboard the vessel awaiting a chartered aircraft to fly them to their respective destinations beginning Wednesday morning.
While the mechanical problems were discovered Monday, Card said technicians didn't realize the extent of the issue until Tuesday.
The department said in a press release that the ferry was expected to be out of service for about six weeks while work is done on its gearbox.
It said the vessel's operator, CAI Nunatsiavut Marine Inc., was also making flight arrangements for people who already have tickets booked until a replacement ferry can be found.
According to the company's website, the MV Northern Ranger has a capacity of 131 passengers and operates a weekly service from Happy Valley-Goose Bay to a number of Labrador communities.
The government said it is working with the company to find a replacement vessel.