The incident occurred around 5am local time, when the boat was flooded following a tornado off the coast of Porticello, near Palermo.
The yacht was carrying 22 people, of whom 15 have been rescued by the Coast Guard and Fire Department and are currently receiving treatment at a local hospital.
The Italian Port Authority confirmed that seven people were initially reported missing, and one man has since been found dead and pulled from the water.
Among those still unaccounted for are four British nationals and the yacht’s chef.
A one-year-old girl was among the passengers rescued; she is being treated at Palermo Children's Hospital alongside her mother.
The mother recounted the trying to rescue her daughter from the sea saying: "For two seconds I lost the baby in the sea, then I immediately hugged her again amidst the fury of the waves."
"I held her tightly, close to me, while the sea was stormy. Many were screaming."
"Luckily the lifeboat inflated and 11 of us managed to get on board"
Helicopters and rescue boats continue to search the area. Rescue divers have also inspected the wreckage, which now lies 49 metres below the surface.
