Survivors said up to 450 migrants had been aboard the fishing vessel when it sank on Thursday about 12 kilometres (eight miles) from Egypt's Mediterranean port city of Rosetta. A health ministry official said 55 bodies had been retrieved.
According to the military, 163 survivors have been rescued. Authorities have arrested four suspected human traffickers over the tragedy, the latest in what the UN refugee agency expects to be the deadliest year on record for the Mediterranean.
Military boats were seen bringing corpses to shore in body bags, one containing the body of a child whose grandfather recognised him and knelt down in shock. Rescuers said the search would focus on the boat's cold storage room where witnesses said about 100 people had been when the vessel flipped over.
"The death toll is going to rise," a medical source told AFP. "On the boat there is a hold used to store fish. It hasn't been opened and there must be a lot of people inside."
The accident comes months after the EU's border agency Frontex warned that growing numbers of Europe-bound migrants were using Egypt as a departure point for the dangerous journey. Traffickers often overload the boats, some of them scarcely seaworthy, with passengers who have paid for the crossing.
On a beach near Rosetta on Thursday, a small crowd gathered with some reading verses from the Koran and others desperately seeking information on relatives who may have been on board.
Many survivors were in police custody. A prosecution official said they would be treated like "victims and not perpetrators" and would be released. Witnesses spoke of the harrowing moment their vessel keeled over due to overcrowding, as well as the agonising hours-long wait for help to arrive.