The captain of NorthLink ferry MV Hrossey, which operates between Shetland, Orkney and Aberdeen, was alerted at around 4am yesterday that a passenger who joined the vessel on the mainland was missing.
The ferry spent five hours searching an area south of Fair Isle, joined by a number of other vessels, including a fisheries protection vessel, a local fishing boat and the lifeboats from Lerwick, Kirkwall and Stromness.
Two rescue helicopters from Shetland, one the coastguard aircraft, continued searching throughout the day and evening yesterday.
A coastguard spokesman said: "We have gone well past the point of survival in the water and there are no plans to continue the search."
The missing man who is believed to be in his 40s, was last seen aboard the vessel at around 3.30am when the Hrossey was still south of Fair Isle, en route from Kirkwall to Lerwick.
The vessel had left Kirkwall in Orkney at 12.25am with 172 passengers aboard and was originally due in Lerwick at 7.30am, but did not arrive until noon.
He is the third person to disappear from a NorthLink ferry in a little over a year.
Last month Craig Townsley, 22, of Shetland, went missing early on Monday last week while travelling on NorthLink Ferries' Hjaltland ferry from Shetland to Aberdeen.
In August last year, 64-year-old Antonio Bernabe Ramirez, from Spain, died after falling overboard the Hjaltland north of Fraserburgh.