UPDATED 2.38PM: More than 700 people are feared to have drowned after an overcrowded boat smuggling them to Europe capsized off Libya, prompting demands for the EU to react to the Mediterranean's deadliest migrant disaster to date.

Italy's coastguard, which is coordinating the search for survivors and bodies, says only 28 people have survived a wreck that has triggered fresh calls from Pope Francis and others for European leaders to act over what many see as an avoidable tragedy.

UN refugee agency UNHCR says survivors' testimonies suggest there had been about 700 people on board the 20-metre fishing boat when it keeled over in darkness, officials say.

"It seems we are looking at the worst massacre ever seen in the Mediterranean," UNHCR spokeswoman Carlotta Sami said.

A Bangladeshi survivor taken by helicopter to hospital in Sicily has put the numbers on board at 950, with 200 women and almost 50 children among them.

European Council President Donald Tusk is considering holding a special EU summit on the crisis amid calls for urgent action from member states such as Spain, Greece, Germany and France.

Italy has led the calls for an emergency summit, with Prime Minister Matteo Renzi saying Rome is working "to ensure this meeting can be held by the end of the week."

EU foreign ministers are set to discuss the immigration crisis at a meeting in Luxembourg on Monday.

Anger among NGOs has been underlined by Amnesty International, which has described the latest disaster as a predictable "man-made tragedy".

Authorities in Italy and Malta picked up a distress signal from the vessel around midnight on Saturday (0800 AEST Sunday), when it was still in Libyan waters.

The Italian coastguard instructed a nearby merchant ship to provide assistance and it was when the Portuguese-registered King Jacob arrived at the scene that the fishing boat capsized, most likely as terrified passengers stampeded to one side in their desperation to get off, the UNHCR's Sami said.

Italian, Maltese and merchant boats scoured the area for survivors but only 24 bodies have been recovered.

The disaster is the latest in a growing catalogue of mass drownings of migrants trying to reach Europe on overcrowded, unseaworthy boats.

The boats are run by people smugglers able to operate out of Libya with impunity because of the chaos engulfing the north African state.

The deadliest incident prior to Sunday occurred off Malta in September 2014. An estimated 500 migrants drowned in a shipwreck caused by traffickers deliberately ramming the boat in a bid to force the people on board onto another, smaller vessel.

UN Responds

UN Secretary General Ban Ki-moon has appealed to world governments to share the burden of taking in refugees after more than 700 migrants were feared dead in the latest Mediterranean boat tragedy.

Ban says he is "shocked and deeply saddened" by reports of the shipwreck off the coast of Libya, noting that it is the latest in a line of incidents in the past week.

He "appeals to the international community for solidarity and burden-sharing in the face of this crisis," said a statement from his spokesman.

At least 1,600 people have died this year by attempting to cross the Mediterranean, making it the "world's deadliest route used by asylum seekers and migrants", he said.

Governments must not only improve rescue at sea but also "ensure the right to asylum of the growing number of people worldwide fleeing war who need refuge and safe haven", he added.

Europe has been facing massive flows of migrants arriving from the Middle East and Africa, fleeing poverty and war.