Rescue teams have so far recovered 111 bodies and expect to find more than a hundred others in the submerged wreck, which is sunk in around 40 metres of water less than 1km (0.6 miles) from the shore of the southern island of Lampedusa.
After 155 survivors were pulled from the water on Thursday, choppy seas were expected to make the recovery work difficult and there was no realistic hope of finding any more of the estimated 500 passengers on board the vessel still alive.
"Two motorboats remained in the area overnight and this morning divers resumed work but we expect to recover more than a hundred bodies from the ship," coast guard official Floriana Segreto said.
The boat, carrying mainly Eritreans and Somalis, sank in the early hours of Thursday after fuel caught fire onboard, triggering a rush to one side of the vessel, which capsized and sank.
Italy held a day of mourning yesterday, and schools observed a minute's silence in memory of the victims, who died four days after 13 migrants drowned in a separate incident off eastern Sicily.
On a visit to Assisi, Pope Francis, who has made the plight of African migrants a central part of his mission, said the deaths underlined the desperate state that faced the poor in a "savage world".
"Today is a day for crying," he said.
A ferry arrived early on Friday with a truck carrying about 100 coffins and four hearses for the dead, who are now lined along the floor of a hangar at the airport.
Lampedusa, a tiny fishing island halfway between Sicily and Tunisia, has borne the brunt of a crisis which has seen tens of thousands of migrants from Africa arriving in unsafe and overcrowded boats.
Last year, almost 500 people were reported dead or missing on the crossing from Tunisia to Italy, the UN refugee office UNHCR says Syrians fleeing civil war have added to the numbers.
The disaster has renewed pressure from Italy for help from the EU to combat the decades-long migrant crisis in the Mediterranean.
Prime Minister Enrico Letta's centre-left Democratic Party (PD) called for an urgent meeting of the European Council to agree setting up "humanitarian corridors" for protection for migrant boats.
It has fuelled a growing political row in which the anti-immigration Northern League party has called for the resignation of Integration Minister Cecile Kyenge, Italy's first black minister.
It said her call for better integration of migrants into Italy, including revised citizenship laws had "sent dangerous signals".
But the mayor of Lampedusa, Giusi Nicolini, rejected assertions by the Northern League party that the boats should be turned back.
"These are refugees. We have a duty to take them in. They must be respected," she said. "The League's message is a virus that is contaminating people with hate."
Controversy surrounds Italy's severe immigration law, which requires repatriation of illegal immigrants and which has often led to the sequester of fishing boats that saved the lives of migrants.
"This immigration law is killing people," said Enzo, a 44-year-old fisherman from Lampedusa.
He said many fisherman were afraid of being put on trial because several had been prosecuted for helping to save stranded migrants.