Iraqi refugees protested to the UN in Jakarta on Friday
Our Jakarta correspondent, Richard Galpin, says the refugees are thought to be heading for the coast of Australia.
Earlier on Friday, Indonesia's national police chief said two police officers had been arrested for protecting smugglers who organised a boat for illegal immigrants that sank last week, killing more than 350 people.
The navy says it is on high alert for the hijacked boat, which is currently thought to be heading towards eastern Indonesia.
It is reported to have been hijacked after leaving the port city of Makassar on Sulawesi by about 170 illegal immigrants from Iraq.
One of the ship's crew managed to escape and was later picked up by the navy.
Our correspondent says it seems to be yet another indication of how desperate asylum seekers from Iraq, Afghanistan and other countries are to get to Australia to start a new life.
According to the Indonesian Government, there are at present about 4,000 illegal immigrants in the country. Many are brought here from Malaysia by smuggling gangs who use Indonesia as a transit point before the final leg of the journey to Australia.
Police arrested
Indonesian national police chief Suroyo Bimantoro said the officers had been arrested in Riau province on Sumatra island.
However, he denied media reports that police pointed their guns at frightened immigrants who wanted to get off the boat because they feared it was unsafe for the journey to Australia.
He said: "They did not point their guns. They guarded [the immigrants]."
He also said police were searching for four people smugglers believed to have organised the boat. He said one was a Malaysian citizen, one Iraqi and two Indonesians.
Australian election
Thousands of asylum seekers travel to Indonesia each year, using it as a springboard from which to get to Australia.
But Australia, which is currently in the middle of a campaign for a general election due on 10 November, has taken a hard line against boat people, and since August it has refused to accept them.
Since then it has turned away about 1,500 migrants, sending them to other countries including Nauru, New Zealand and Papua New Guinea to have their claimes processed.
Opposition leader Kim Beazley said on Friday that the policy would be no different under a Labour government.
But he said the policy could only succeed by negotiating with Indonesia to persuade it to accept returned asylum seekers for processing.
The authorities in Australia on Friday sentenced four Indonesian people-smugglers to six years in prison for bringing more than 200 asylum-seekers to the Australian territory of Christmas Island in June.