Only 28 people survived the capsize, UNHCR spokeswoman Carlotta Sami told the Skytg24 news channel in Italy. The survivors indicated there had been more than 700 on board, she said.
The Maltese navy put the numbers on board at around 650 and said an alert had come in around midnight local time yesterday.
"We have deployed our assets along with others from Italy and we are assisting in the rescue operation," a Maltese navy spokesman told AFP today without giving any other details.
The boat went down about 96 km off the Libyan coast and 193 km south of the Italian island of Lampedusa.
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The disaster comes after a week in which two other shipwrecks left an estimated 450 people dead. More than 11,000 other would-be immigrants to Europe have been rescued by Italy's coastguard and other boats.
Some 1,500 migrants have now drowned in the waters between Libya and Italy since the start of the year.