Philippine authorities said they were working Saturday to contain a huge diesel spill that shut down parts of Manila Bay's vital fishing industry.

Ryan Santos, a district official at one of the hard-hit coastal villages, said the fuel polluting the water had dissipated noticeably a day after it was released, but its pungent stench remained.

"A few local fishermen are putting to sea again, but have to go much further out to reach the fish," Santos told AFP by telephone.

However, most stayed at home.

"They are complaining that the slick is fouling up their boat hulls and nets," he added.

Local officials said fish and other marine life floated up dead and some residents fell sick from the fumes after an estimated 500,000 litres of the fuel cast a slick across 20-kilometres (12 miles) of coastline near the capital Manila from Thursday.

The coastguard said the slick, which by Friday had covered a 300-square-kilometre area, was likely released by either a fuel depot in the area or an oil tanker that had unloaded its cargo at the terminal.

The bay is the country's most important waterway in a region where about 30 million people, nearly a third of the Philippines' population, live.

Petron Corp, the depot owner, struck a deal with the government earlier Saturday for both sides to deploy more oil containment booms and crews to speed up the clean-up, coastguard spokesman Commander Armand Balilo said.

"It has been mostly contained... Our latest feedback is that some of the slick is evaporating the natural way under the heat of the sun," he said.

"Nevertheless, exposure to diesel is harmful to human health and to marine life, so we are exerting efforts to collect what is left out there," he told reporters.

Jose Ricafrente, mayor of Rosario town where the depot is located, earlier said the spill jeopardised the livelihood of 40,000 people who depend on the town's vital fishing industry.

Santos, the village official in Rosario, said about a hundred fishers who were temporarily put out of work were helping gather the spilt fuel from the water Saturday.

The fuel is put into water bottles which they handed over to village officials in exchange for claim stubs that entitled them to emergency food rations from the social welfare ministry, Santos said.