The boat, carrying migrants from Afghanistan, Iran and Pakistan, capsized on the way to Kupang in eastern Indonesia, a key transit point for refugees trying to reach Australia, local navy official Dayat Sudrajat told AFP.
"Forty people were rescued but seven people, four adults and three children, drowned. We are still searching for those missing," he said, adding the toll was likely to rise as people were trapped in the boat.
"I believe they were headed for Australia."
The dead and 15 injured have been taken to hospital, according to Samsudin, who like many Indonesians goes by one name, from the local Pangandaran police, while police were questioning some others.
Authorities were still investigating the cause of the accident but it was likely due to overloading and leaks, Sudrajat said.
"Strong winds and big waves as high as 2.5 metres could be other factors," he added.
Thousands of asylum seekers head through Southeast Asian countries on their way to Australia every year and many link up with people smugglers in Indonesia for the dangerous voyage.
Canberra has failed in its efforts to set up a regional processing centre in neighbouring countries in an attempt to reduce the flow of asylum seekers heading to Australia.
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