An official of Indonesia's safety transport committee said he could not confirm the cause of the crash, which would have to wait until the recovery of the plane's black box, which contains the cockpit voice recorder and data flight recorder.
"We will collect all data from the control tower," said Soerjanto Tjahjono.
"The plane is so modern, it transmits data from the plane and that we will review too. But the most important is the black box."
The Directorate General of Civil Aviation said the plane had "asked for a return to base before it finally disappeared from the radar".
Lion Air said in a statement that the plane's pilot and co-pilot had together amassed 11,000 hours of flying time.
Families who were waiting for their relatives at Pangkal Pinang began weeping when they were told the plane had crashed.
"Ya Allah (Oh my God)," a woman said while wiping away tears.
The Ministry of Transportation has now opened crisis centres for the families in Jakarta and Pangkal Pinang.
Australia's Department of Foreign Affairs said it was aware of the crash and the embassy in Jakarta was making urgent inquiries to determine whether any Australians were affected.
'We are trying to collect all the information and data'
Preliminary flight tracking data from air tracking service Flightradar24 showed the aircraft climbed to around 5,000 feet (1,524 metres) before losing and then regaining height, and then finally falling towards the sea.
It was last recorded at 3,650 feet (1,113 metres) and its speed had risen to 345 knots, according to raw data captured by the website, which could not immediately be confirmed.
Its last recorded position was about 15 kilometres north of the Indonesian coastline, according to a Google Maps reference of the last coordinates reported by Flightradar24, and it crashed in waters 30 to 35 metres deep.