Up to 75 asylum seekers may be dead and 40 others are clinging to the hull of an upturned boat, which has capsized in Indonesian waters.

Up to 200 people were on board the vessel, which was on its way from Sri Lanka to Australia.

The maritime drama began to unfold after 3pm (AEST) on Thursday when an Australian Customs and Border Protection surveillance plane spotted a vessel "in distress" 200km north of Christmas Island.

The observers immediately contacted Indonesian authorities, who are leading the rescue effort alongside the Australian navy, defence and customs.


"It is believed up to 200 people could be on board, although this detail has not yet been confirmed," Customs said in a statement.

West Australian Police Commissioner Karl O'Callaghan said about 40 people were spotted on the upturned hull, others were in the water and up to 75 others may be dead.

"We have grave fears for the remainder," he told reporters.

Mr O'Callaghan said it was likely the bodies would be taken to Christmas Island and WA might become responsible for a coronial inquiry.

Indonesia's search and rescue authority BASARNAS is coordinating the search with the Australian Maritime Safety Authority (AMSA).

AMSA confirmed there are definitely survivors but was unable to give numbers.

The Australian mission involves Defence aircraft equipped with life rafts, a Customs maritime surveillance aircraft, and two Armidale class patrol boats, HMAS Larrakia and Wollongong.

A number of civilian vessels are also on the way to the area.

BASARNAS spokesman Gagah Prakoso confirmed two Indonesian vessels were also on their way.

"At the moment, we're waiting for them to report back," Mr Prakoso said.

It was still unclear whether the survivors would be taken to Australia or returned to Indonesia.

Mr Prakoso said Australian authorities had confirmed the boat originated in Sri Lanka.

Three other boats, carrying a total of about 240 asylum seekers, have been intercepted near Christmas Island over the past two days.

Home Affairs Minister Jason Clare is being briefed and may make a statement later on Thursday night.

Prime Minister Julia Gillard is likely to discuss the situation with Indonesian President Susilo Bambang Yudhoyono at a breakfast event they are both attending in Rio, Brazil, on Thursday.

Earlier on Thursday, Immigration Minister Chris Bowen accused the opposition of courting tragedy by refusing to support the government's bill aimed at resurrecting offshore processing.

"Their destructive negativity means people continue to risk their lives on dangerous boats," he said, just hours before the news of the capsize broke.

Also speaking earlier on Thursday, coalition immigration spokesman Scott Morrison said the government had no plan to stop the flow of boats.

"They are globally known as a soft touch on this issue," he told reporters.

The Australian Christian Lobby said Thursday's capsize underscored the need for the government and opposition to find a bipartisan solution.

More than 50 asylum seekers died when a boat known as SIEV 221 crashed against rocks off Christmas Island in December 2010.

The youngest was just three months old.

The disaster was the largest loss of life in Australian waters in peacetime in 115 years.

And as many as 200 people drowned last December when an overloaded boat sank off the coast of East Java on its way to Australia.

Just 49 people survived that tragedy, which occurred in rough monsoonal seas on December 17.

So far this year, 57 boats carrying a total of 4006 passengers and 82 crew have arrived in Australia.

For the month of June, there have been 18 boats carrying more than 1100 people.

The latest arrived arrived overnight on Thursday and had 117 people on board.