Ships and aircraft scoured the Indian Ocean for survivors and officials said so far 110 people have bee rescued, but held little hope for others.
Four Indonesian and Australian warships, four merchant ships and five Australian government aircraft were searching for the survivors, Australian Maritime Safety Authority spokeswoman Jo Meehan said.
Three bodies have been recovered so far.
The boat, crowded with asylum seekers, capsized about halfway between the Indonesian island of Java and Christmas Island yesterday.
Most of the survivors were taken to Christmas Island. Three men were receiving medical treatment at the island's hospital.
Meehan said the rescuers were not giving up hope.
"Well our information is that conditions for survivability will continue for the next couple of days, we'll continue the search into the evening, the full scale search will resume again tomorrow morning."
Between 90 and 100 people were unaccounted for.
Home Affairs Minister Jason Clare said aircraft over the search and rescue area had spotted more bodies but no more survivors, Australian News Agency AAP reported.
"We need to brace ourselves for more bad news," Clare said.
Clare said that the boat's crew first made a distress call to Australian authorities on Tuesday night and another early on Wednesday.
Australian officials told them to turn around and head back to Indonesia, before telling Indonesian authorities of the boat's location.
A Customs and Border Protection surveillance plane spotted the boat on Wednesday afternoon but reported no visual signs of distress.
Clare dismissed suggestions that Australian authorities could have saved lives by acting sooner.
"I'm not going to second-guess today the action they have taken other than to say it looks like they took proactive steps," he said.
Nonetheless, a full investigation into the incident would be undertaken, he said.
The Australian Maritime Safety Authority said that the vessel was in Indonesia's search and rescue zone "at all times".
Australia's Prime Minister Julia Gillard described the capsizing of an asylum seeker boat as a tragic incident.
"This is a very distressing and tragic incident. We don
