Hundreds of residents and relatives of those on board lit candles and observed a minute’s silence for the victims.
Flight QZ8501, carrying 162 people from Surabaya to Singapore, disappeared on Sunday. Debris from the flight was located in the sea on Tuesday.
Seven bodies have been retrieved, but weather conditions have hindered further salvage efforts.
There were 137 adult passengers, 17 children and one infant, along with two pilots and five crew, on the plane.
The majority of those on board were Indonesians.
Hundreds of people, including young children, turned out to the vigil in Surabaya on Wednesday evening.
Surabaya’s Mayor Tri Rismaharini said: “Let us pray for the grieving families of those on board the plane. Let us pray this will be the last tragedy for Surabaya.”
All New Year’s Eve celebrations in East Java province were cancelled.
In Jakarta, the capital, residents began new year festivities with a prayer for the victims. A number of other cities cancelled or scaled down their new year celebrations.
Earlier on Wednesday, the first two bodies from the crash were flown back to Surabaya. The bodies were in coffins numbered 001 and 002, as they had not yet been identified.
The other five bodies are reportedly on board a ship headed to a harbour near the town of Pangkalan Bun in the Indonesian part of Borneo.
Four of the seven bodies are male and three female, one of them a flight attendant.
Family members of those on the flight have been asked for DNA samples to help identify the victims.
It is not yet clear what happened to the plane but its last communication was a request to air traffic control to fly higher to avoid bad weather. The pilot did not respond when given permission.
A three-day search culminated on Tuesday with the discovery of remains including aircraft parts, luggage and three bodies in the Karimata Strait, south-west of Pangkalan Bun.
Search teams recovered four more bodies on Wednesday, before the search was called off for the day due to adverse weather.
Strong winds and 2m waves left helicopters grounded and prevented divers from searching the waters.
Ships have been deployed to search for wreckage from the plane. Officials are hoping to recover the black box flight recorder, which could provide information about the crash.
The Associated Press news agency quoted one official as saying the bodies of victims could end up being washed up on beaches.
“It seems all the wreckage found has drifted more than 50km (31 miles) from yesterday’s location,” Vice Air Marshal Sunarbowo Sandi said.
The search is being led by Indonesia but is a multinational effort. Singapore has sent ships equipped with sensors to detect pings that may be emitted from the plane’s black boxes.
Malaysia, Australia and Thailand are also involved, while the US destroyer USS Sampson has been sent to the zone.
AirAsia previously had an excellent safety record and there were no fatal accidents involving its aircraft.