A total of 114 bodies have been found, said Pietro Bartolo, the top health official on Lampedusa. It was one of the deadliest accidents in recent times during the notoriously perilous crossing from Africa for migrants seeking a new life in the European Union.
Italy's Interior Minister Angelino Alfano headed to Lampedusa to oversee the rescue operations first-hand. Pope Francis, who visited Lampedusa in July, quickly sent his condolences.
"It's an immense tragedy," said Lampedusa Mayor Giusi Nicolini, adding that the dead included at least one child of about three and a pregnant woman.
The migrants were from Eritrea, Ghana and Somalia, the coastguard said.
Antonio Candela, the government's health commissioner for Palermo, said search and rescue operations were continuing. He said 159 people have been rescued but the boat is believed to have been carrying as many as 500 people, meaning many are still unaccounted for.
Coastguard ships and helicopters from across the region, as well as local fishing boats were on the scene trying to find survivors.
Mayor Nicolini said the ship had caught fire after those on board set off flares so it would be seen by passing ships. The ship apparently then capsized, spilling the passengers into the sea near Conigli island.
On Monday, 13 men drowned while trying to reach southern Sicily when their ship ran aground just a few yards from shore.