The victims were on a wooden boat carrying between 500 and 700 people which was just 20 nautical miles off the Libyan coast.
"There's a critical situation today. About 200 people fell into the water," an Italian coastguard spokesman told AFP, saying 34 bodies had been recovered including at least 10 children, some of whom were toddlers.
The victims were on a wooden boat carrying between 500 and 700 people which was just 20 nautical miles off the Libyan coast when the disaster happened.
The crew of the Phoenix aid boat, chartered by the Maltese charity MOAS, had begun the rescue and were distributing life jackets when many of those on deck fell into the water, perhaps knocked off balance by a wave.
"Not a scene from a horror movie... Real life tragedy unfolding on Europe's doorstep today!," said MOAS co-founder Chris Catrambone, who was aboard the Phoenix and published photos showing white body bags lined up on the deck.
"Rescuers are frantically trying to break open the locked hold on a wooden boat where hundreds of migrants are trapped!" he tweeted.
With the help of an Italian coastguard ship and several commercial ships, rescuers managed to drag many people from the water, while a military aircraft dropped life rafts and a helicopter looked for survivors.
About 15 relief operations were under way Wednesday off Libya in total, the coastguard said.
On Tuesday, they coordinated the rescue of about 1,500 people, while their Libyan counterparts intercepted 237 others, including 20 women and 15 children, travelling on two wooden boats.
The German charity Jugend Rettet said Tuesday it had had a run-in with armed men on a boat purportedly commandeered by the Libyan coastguard.
The Libyan boat already had passengers on board -- presumably picked up from a dinghy in the area.
Jugend Rettet published a photograph appearing to show the armed men pointing their weapons directly at the migrants and said "a variety of shots" were fired "and refugees were beaten".
About 100 people on the Libyan boat panicked when the shots rang out and threw themselves into the water, swimming towards the German boat Iuventa and the SOS Mediterranee boat Aquarius, which was also at the scene.
"We can not say whether and how many dead there were in the shooting. We had to be careful not to get a bullet ourselves," Jugend Rettet said in a statement citing the Iuventa's 25-year old captain Jonas, without giving his surname.
SOS Mediterranee said the migrants said the Libyans had ordered them overboard.
"When the Libyans pointed their weapons at us and asked us to give them all our money and our cell phones and told us to jump in the water, we did what they said," a 20-year-old Gambian told the Aquarius crew.
"I was not afraid, I would prefer to die at sea than be forcibly returned and die in Libya," he said.
Two weeks ago, the German NGO Sea-Watch reported an aggressive intervention by the Libyan coastguard as it tried to take control of a large wooden boat sailing in international waters with 450 migrants on board.
The Libyan coastguard has recently begun carrying out its own operations at sea, towing migrant dinghies headed for Europe back to shore and locking up those recovered in centres which are renowned for human rights abuses.