Migrants have been streaming out of North Africa in rickety boats in rising numbers for years. So far in 2014, the total number reaching Italian shores has passed 100,000, the Italian government said this week.
"The coast guards have rescued 17 of the illegal migrants," navy spokesman Ayoub Qassem said. A search for the rest of the passengers was underway, he added.
Local coast guard official Mohammad Abdellatif told Reuters Television they had been alerted to the sinking by local fishermen at dawn on Saturday morning.
Abdellatif said the coast guard in Qarabouli had no equipment and so is forced to borrow fishing vessels and tug boats to carry out their rescue missions.
He said they had informed the hospital, ministry of health and the criminal investigations department of the accident and that all three had defused to collect the bodies.
All of the people rescued had been released as there was nowhere to detain them, he said.
The Italian navy told Reuters they were not involved in the incident and had no further details.
Italy is carrying out the bulk of patrols in the Mediterranean Sea aimed at preventing major tragedies involving migrants. More than 70,000 people have been rescued through the "Mare Nostrum" (Our Sea) mission of patrols which Italy began last October.
Additional reporting by Isla Binnie in Rome; Writing by Ulf Laessing; Editing by Raissa Kasolowsky