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KiwiRail reported the incident on the Kaiarahi at 6.10am when the ferry was about 50 minutes away from port.
A spokesperson said there were passengers on the ferry at the time.
Fire and Emergency has confirmed the leak form a large, 25,000-litre LPG tank.
It has two crews from Picton on the scene, who're currently in breathing apparatus, spraying water on the tank to contain the leak and minimise the risks of explosion.
Two more crews from Blenheim are on the way, as well as the Nelson HAZMAT unit.
The police are also assisting.