The boat capsized as those on board rushed to greet a merchant vessel approaching them.
It sank within minutes.
Irish and Italian naval ships were nearby, and helped pluck survivors from the water.
A Medicins Sans Frontieres rescue boat also joined the rescue effort.
MSF's Emergency Co-ordinator Will Turner says they worked quickly to provide medical care.
"For ourselves, we were too far away to respond on the Phoenix, but our colleagues on board one of the MSF rescue ships the Dignity first were some of the first to respond on the scene. What they found when they got there was unfortunately they had arrived too late, many people were in the water. So they immediately deployed rescue boats to go around collect people out of the water, put them into life rafts and start triaging people who needed the most urgent and most necessary medical assistance."
Among the hundreds on board were families with small children.
Will Turner says the 20 metre fishing vessel was hopelessly overcrowded.
"A boat of that size could take, safely, 50 to 80 people and you can imagine 700 people it's terribly unsafe and overloaded. And something as simple as a shift in people or a freak wave or panic can cause a boat to capsize and within seconds that can be the difference between life and death, certainly in the absence of life jackets which are very much the rarity for people who are making this fateful crossing."
UNHCR spokesperson, Melissa Fleming, says it's feared many below decks have perished.
"Obviously the people were stuffed down into the hull. Shoulder to shoulder, feet to feet, in every nook and cranny, so much that when a rescue boat approached, people became anxious and excited and tipped the boat over so that it capsized. And according to the people on the rescue boat, it sank within minutes. There were bodies, life jackets and debris in the water, and the rescue ships did what they can to rescue people. Luckily they were there."
The boat was just 25 kilometres from the Libyan coast when it sank.
They are the latest casualties amongst waves of people taking to the seas from the Middle East and Africa every week.
At least 800 migrants died when their boat went down in the same area in April.
The International Organisation for Migration says more than two-thousand people have died attempting the sea crossing to Europe this year.
It's feared 2015's numbers will overtake last year's toll of 3,279.
The IOM's Leonard Doyle says the journey is inherently dangerous.
"We have to remember that these are people who are not used to being at sea. They're in very small boats and they're terrified. So the idea - when they see, what looks like protection coming or rescue, it's quite perfectly understandable that they would go to one side, and it really speaks to the situation of the smugglers, who really care very little for human life, over-pack their vessels, the fact that this would happen, even as rescuers were nearby is really the tragedy."
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