A boat carrying 40 people, who may be asylum seekers, has sunk in rough seas north-west of the Cocos Islands.

The ship's master has told authorities that up to 17 people have been rescued and about 23 are still missing.

There are grave fears for their safety because of the rough conditions and the length of time they have been in the water.

Australian Maritime Safety Authority (AMSA) spokeswoman Rhianne Robson says the crew is still searching for survivors.

"The LNG Pioneer is a large vessel and they are trying their best with life rafts and their life boat to recover those in the water," she said.

Australian authorities are coordinating the rescue effort and AMSA says a Defence Force P3-Orion patrol plane is being sent to assist with the search.

Chief of the Defence Force Angus Houston says the nearest navy ship was 28 hours away from the scene of the incident.

Air Chief Marshal Houston says a Taiwanese fishing boat got to the scene late last night and a gas carrier shortly afterwards.

"When the first ship got there this vessel was still intact," he said.

"Somehow or other during the process of the interaction between the ship and the trawler, and also the stricken vessel, there's been a capsize and people have ended up in the water."

AMSA received a distress signal yesterday morning with reports the boat had a hole in the bottom and was taking on water.

It issued a broadcast for help and merchant ship LNG Pioneer from the Bahamas responded, but it was 12 hours away.

But when the boat arrived in the area, which is hundres of kilometres north-west of Christmas Island, the boat had already sunk.

Authorities are yet to confirm if the boat was carrying asylum seekers.