A report has found a ferry carrying more than 300 people which broke down in the Hauraki Gulf had a catastrophic engine failure.

Fullers' Jet Raider was traveling between Auckland city and Waiheke Island when the engine failed in August 2011.

A Transport Accident Investigation Commission report says two engine connecting rods broke free of the crankshaft and were ejected through the engine casing, causing fire alarms to go off.

The passengers were transferred to another vessel.

The TAIC says there is no evidence of poor maintenance procedures contributing to the engine failure.

The report also says small modifications in the ferry design could reduce the risk during passenger transfers between boats.