It was one of the deadliest recent accidents in the notoriously perilous Mediterranean Sea crossing from Africa for migrants seeking a new life in the European Union.

"We need only caskets, certainly not ambulances," Pietro Bartolo, chief of health services on the island, told Radio 24.

Only three of an estimated 100 women on the ship had been rescued, and no children had been saved so far, said Simona Moscarelli, a legal expert for the International Organisation for Migration in Rome.

"Only the strongest survived" the capsize and most of the migrants could not swim, she said after her agency held early interviews with survivors.

Antonio Candela, the government's health commissioner for Palermo, said 159 people had been rescued.

Lampedusa is closer to Africa than the Italian mainland — a mere 113 kilometres off the coast of Tunisia — and is the frequent destination for smugglers' boats. Blue, white, green and black tarpaulins covered the bodies at the port.

Coastguard ships, local fishing boats and helicopters from across the region were combing the waters trying to find survivors, said coastguard spokesman Marco Di Milla.

Video:Hundreds feared dead in Italy migrant boat disaster

Italy's interior minister, Angelino Alfano, told reporters that the 20-metre boat began taking on water after its motor went out. The passengers did not have any mobile phones to call for help so instead set a small fire to flag passing ships.

But because fuel had mixed with the water flooding the ship, the fire then spread to the ship itself. Passengers fled to one side of the boat, flipping the ship, and some 450-500 people were flung into the sea, Alfano said.

Calling the deaths of migrants "an endless tragedy," Foreign Minister Emma Bonino said: "The rescue operation began immediately, but it is getting more difficult because now the weather is getting colder, they don't know how to swim, they don't know where to go."

A fishing boat raised the alarm at about 7.20am and began pulling people out of the water before coastguard vessels arrived on the scene.

Shaken survivors wrapped in thermal blankets - many of them bare-chested - were seen arriving on the dock in images shown on Italian television, as an emergency worker broke down in tears.

The bodies were being taken to a hangar at the local airport because there was no more room in the local morgue on the remote southern Italian island, which has a population of about 6,000.

The asylum-seekers said they were from Eritrea and Somalia and local police were quoted as saying they believed the boat had left from Libyan shores.

"We left two days ago from the Libyan port of Misrata. We were 500 on that boat, we could hardly move," one survivor said, Ansa reported. "Three fishing boats spotted us during the crossing but did not rescue us."

A young Tunisian man believed to be one of the crew members has been detained.

Pope Francis, who visited Lampedusa in July, quickly sent his condolences.

It was the second shipwreck this week off Italy: On Monday, 13 men drowned while trying to reach southern Sicily when their ship ran aground just a few metres from shore.

Hundreds of migrants reach Italy's shores every day, particularly during the summer when seas are usually calmer.