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The ferry, carrying 476 passengers, many of them schoolchildren, and crew, capsized on Wednesday on a journey from the port of Incheon to the southern holiday island of Jeju.
Some 174 people have been rescued and hopes were fading for those still missing.
The divers saw the bodies in a submerged cabin where many of the children were believed to be trapped, but were unable to break the glass to retrieve them.
No sounds have been detected from within the capsized hull, the coastguard told reporters.
The discovery comes amid stalled rescue efforts due to strong tides as hundreds of navy, coastguard and private divers scour the site, 25 km (15 miles) off the southwest coast of South Korea.
Investigations into the sinking, South Korea's worst maritime accident in 21 years based on possible casualties, have centred on crew negligence, problems with cargo stowage and structural defects of the vessel, although the ship appears to have passed all of its safety and insurance checks.
The ship's 69-year-old captain was arrested early on Saturday, Yonhap news agency said, after coming under scrutiny over witness reports that he was among the first to escape the sinking vessel during its 400-km (300-mile) voyage to Jeju.
According to investigators, Captain Lee Joon-seok was not on the bridge at the time the ferry, the Sewol, started to list sharply, with a junior officer at the wheel.
Yonhap said Lee faced five charges including negligence of duty and violation of maritime law. Arrest warrants were also issued for the junior officer and one other crew member for failing in their duty to aid passengers.
Handing over the helm is normal practice on the voyage from Incheon to Jeju, which usually takes 13.5 hours, according to local shipping crew.
The ferry went down in calm conditions and was following a frequently travelled route in familiar waters. Although relatively close to shore, the area was free of rocks and reefs.
Lee has not commented on when he left the ship, although he has apologised for the loss of life.
He was described as an industry veteran by the officials from Chonghaejin Marine Co Ltd, the ship owner, and others who had met him described him as an "expert".
Some media reports have said the vessel turned sharply, causing cargo to shift and the ship to list before capsizing.
Marine investigators and the coastguard have said it was too early to pinpoint a cause for the accident and declined to comment on the possibility of the cargo shifting.