The Costa Concordia had left the port of Savona at 7pm at the start of a seven-day cruise of the Mediterranean and was sailing to Civitavecchia, its first port of call, when disaster struck.
After just two hours, the ship ground to a halt near the island of Giglio, off the Tuscan coast.
A harbour master said it looked like it ''ran aground'', but Costa Cruises, which owns the liner, said it was ''too early to say what caused the incident".
Coastguards were immediately dispatched to the scene as passengers were ordered to put on life vests and man life boats as the ship began to list heavily to one side.
There were reports of people having jumped into the water but no injuries were reported.
Passenger Luciano Castro told Italian media: ''We were having dinner when all of a sudden the lights went out. It seemed as if the ship struck something and then we heard a load bang and everything fell to the floor.
''The captain immediately came on the tanoy and said that there had been an electrical fault but it seemed very strange as the ship almost immediately began to list to one side. The glasses just slid off the table.
''We were then told to put on our life vests and head to the life boats just to be safe but there was a real panic onboard you could see it in the faces of the people especially those with young families.
''Then a few minutes later there were seven whistles which meant everyone had to get in the lifeboats.'' more