LAMPEDUSA (AFP) - Italy mourned the 300 African asylum-seekers feared dead in the worst ever Mediterranean refugee disaster, as debate raged over Europe's flawed migration policy.

Emergency services on the island of Lampedusa, Italy said on Friday they had recovered 111 bodies and plucked 155 survivors from the water from a boat with an estimated 450 to 500 people on board.

Divers who explored the wreck spoke of seeing dozens of bodies around the ship and rescuers said more bodies may have been swept further out to sea by the strong currents around Lampedusa.

The badly overcrowded 20-metre vessel caught fire, capsized and sank on Thursday just a few hundred metres from Lampedusa, as its terrified passengers jumped into the sea.

The migrants were Eritreans and Somalis and their boat had departed from the Libyan port of Misrata.

A suspected Tunisian crew member has been detained as prosecutors investigated the tragedy.

Flags flew at half mast across Italy and schools held a minute of silence for the victims while President Giorgio Napolitano called for the abolition of a law against facilitating illegal immigration that penalises potential rescuers.

Locals on the island, which is closer to North Africa than to Italy and has a population of just 6,000, fought back tears as they spoke of the desperate rush to save drowning immigrants.

"The hardest thing was seeing the bodies of the children. They had no chance," said local doctor Pietro Bartolo, who said in 20 years on the island he had "never seen a human tragedy like this".

Mr Alessandro Marino, a shopkeeper on Lampedusa, spoke of seeing "a nightmarish situation" when he saw the scene from his boat.

Ms Rossella Manuci, a waitress who also came to the rescue, said: "For most of the poor souls, it was too late".

Survivors said the fire started when they set light to a blanket on the boat to attract the attention of coast guards after their vessel began taking on water. Medical personnel said many of them had swallowed gasoline and sea water.

Lampedusa is a major landing point for asylum-seekers entering the European Union, with many fleeing impoverished and war-torn countries of Africa, the Middle East and Southeast Asia.

Some 25,000 migrants have arrived in Italy so far this year - more than three times the number from all of last year but still only half the figure for 2011 at the height of the Arab Spring revolts.

Immigration charities estimate between 17,000 and 20,000 migrants have died at sea trying to reach Europe over the past 20 years, crossing on rickety fishing boats or rubber dinghies.