Malta's Prime Minister Joseph Muscat said at least 27 migrants were dead after the heavily loaded boat capsized in rough seas on Friday around 100 kilometres (60 miles) south of Lampedusa and 110 kilometres from Malta.
Italian news agency Ansa said about 50 bodies, including women and around 10 children, had been pulled from the sea.
"Operations to recover the bodies are ongoing," Muscat told journalists.
Around 150 survivors have already been picked up by a Maltese ship, the prime minister said.
The Italian navy has rescued around 50 survivors, and more rescue boats and helicopters have been sent to the site.
The Maltese navy swiftly dispatched rescue ships and helicopters and diverted commercial vessels to the area. Italy sent two naval vessels and helicopters carrying inflatable life rafts.
"The operation is in progress. The navigational conditions are difficult, with strong wind," a Maltese navy spokesman told AFP.
An Italian helicopter carrying around 10 surviving children landed on the tiny island of Lampedusa, where hundreds of migrants are already seeking refuge in a seriously overcrowded reception centre.
European Union Commissioner for Home Affairs Cecilia Malmstroem said she was following the rescue operations "with sadness and anxiety" and praised Italy and Malta for their swift response.
"These new horrible events are happening while we still have the shocking images of the tragedy in Lampedusa in our minds," she said, adding that the latest disaster highlighted the need for expanded search and rescue operations "to better detect and assist boats in distress".
The Commission has been urging EU states to pledge planes, ships and funds for EU border guard service Frontex, whose budget has been cut.
Italian Prime Minister called the latest tragedy "a new and dramatic confirmation of the state of emergency".
"Italy and Malta cannot be left all alone, this is a European problem," said his Maltese counterpart, Muscat, who spoke with Letta by phone.
The migrants in Friday's disaster alerted the authorities using a satellite phone when their boat got into difficulty in Maltese waters.
The boat capsized after those aboard attempted to catch the attention of a military aircraft flying overhead by gathering at one end of the vessel, the Maltese navy said.
On Friday morning, Italian divers found another body from the refugee shipwreck last week off the coast of Lampedusa, raising the death toll in the tragedy to 312.
Only 155 survivors were rescued out of an estimated 500 people, most of them Eritreans and Somalis, on the boat which departed from Libya.
The disaster has shown up the EU's asylum policy, which has been criticised for being overly restrictive and forcing refugees to resort to desperate measures to reach Europe.
EU Commission President Jose Manuel Barroso was heckled by activists and local residents when he visited Lampedusa on Tuesday.
The remote island is Italy's southernmost point and closer to the African continent than to the rest of the country.
Italy has appealed to EU states for help in coping with the thousands that are washing up on its shores every month, and wants migration to be put on the agenda of summit talks in Brussels at the end of the month.
Immigration charities estimate that between 17,000 and 20,000 migrants have died at sea trying to reach Europe over the past 20 years, often crossing on rickety fishing boats or rubber dinghies.
