Flight JT 610 was headed for Pangkal Pinang, in the Bangka Belitung Islands, when it lost contact.
Rescuers have recovered some remains and there is no sign of survivors.
The cause of the crash, involving a new plane in operation since August, remains unclear. Lion Air is Indonesia’s largest low-cost carrier.
The incident is reported to be the first major accident involving a Boeing 737 Max – an updated version of the 737.
“The plane crashed into water about 30m to 40m deep,” Search and Rescue Agency spokesman Yusuf Latif told AFP news agency. “We’re still searching for the remains of the plane.”
Rescuers have recovered body parts from the sea. Items believed to belong to passengers have also been found in the water, including baby shoes, ID cards and driver’s licences.
“We need to find the main wreckage,” Bambang Suryo, operational director of Indonesia’s search and rescue agency said. “I predict there are no survivors, based on body parts found so far.”