Italian and Maltese ships, supported by helicopters, moved out to the tragedy scene and were searching in darkness.
203 people are said to have been saved (a life raft carrying survivors is shown in the picture), but dozens bodies reportedly died.
Italy's coast guard and Maltese officials said the boat capsized about 120 km off Lampedusa. The vessel was initially spotted by the Maltese air force which then requested Italy's help.
The Maltese authorities are co-ordinating the operation in the country's territorial waters.
Malta's prime minister Joseph Muscat said 27 people confirmed dead. However, the first reports in Italian media said that the death toll was 50 people. Many women and children are expected to be among the victims.
The information on precise number of the deceased, as well as their nationalites, is awaited.
Reports say people on board had crowded to one side of the vessel as they tried to get the attention of a passing aircraft, causing it to capsize.
The BBC's reporter Matthew Price in Lampedusa says that darkness is now hampering the operation.
Key destination
Last Thursday, at least 319 people, mostly Somalis and Eritreans, died when their boat sank near the island. Only 155 people were rescued of more than 500 believed to have been on board.
Earlier on Friday at least 500 more migrants travelling in separate boats were rescued in coastguard operations in the same region.
Also Friday, a separate boat accident off the Egyptian port of Alexandria claimed the lives of at least 12 migrants.
Egyptian security officials said 116 people, mostly Palestinians and Syrians, were pulled from the water and taken to a police station.
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