Human smugglers were apparently laughing as they deliberately sank a boat packed with asylum seekers in the Mediterranean killing hundreds of people, including women and children, survivors have said.

Two Palestinian migrants, who were rescued by a freighter after spending more than two days in the water, confirmed to the International Organization for Migration (IOM) initial reports that up to 500 people died in what appears to be a bloody criminal act.

They told IOM investigators that the 10 traffickers, believed to be Palestinian and Egyptian, turned against the migrants as they refused to switch to a smaller, unseaworthy boat on the way to Europe.

At first, smugglers threatened to return everyone to the port of origin in Egypt.

When this failed to convince the would-be-refugees, who had already switched boat three times since they had left the port of Damietta few days earlier, the traffickers started yelling and throwing sticks at them, the survivors said.

Finally they rammed their vessel into the other boat causing hundreds to drown.

"After they hit our boat they waited to make sure that it had sunk completely before leaving. They were laughing" one of the survivors told IOM.

"When the boat was first struck, one of the passengers killed himself in despair by hanging," he added.

The incident happened at the end of last week, about 300 miles southeast of Malta.

"If survivors' reports are confirmed, this will be the worst shipwreck of migrants in years, not an accidental tragedy, but the apparent deliberate drowning of migrants by criminal gangs who extort money for their desperate journeys. Their actions are as callous as they are evil," said IOM spokesperson Leonard Doyle.

The two survivors said they managed to stay afloat for two days, as others around them disappeared under the water.

They were later picked up by a UK-flagged vessel along with other seven people, including a two year-old girl and flown by a Greek military helicopter to hospital in Crete.

One of them has since died and a girl remains in critical condition, IOM said.

The two Palestinians said their tragic journey began in a "travel" office in Gaza where it was planned they would cross to Egypt and from there embark on a ship to Italy for a price of $2,000 each (£1,230).

They said there were up to 500 Syrians, Palestinians, Egyptians and Sudanese aboard about including 100 children.

Their account corroborated that of another two Palestinians from Gaza who were separately rescued and taken to Italy.

The IOM said almost 3,000 people have drowned in the Mediterranean trying to reach Europe this year only.