Bambang Soelistyo said the hypothesis was based on the co-ordinates of the plane when contact with it was lost.
The search is continuing for the aircraft, a day after it disappeared with 162 people on board, but no trace has been found so far.
The Airbus A320-200 was on a flight to Singapore.The pilots had requested a course change because of bad weather but did not send any distress call before the plane disappeared from radar screens.
"Based on the co-ordinates given to us and evaluation that the estimated crash position is in the sea, the hypothesis is the plane is at the bottom of the sea," Bambang Soelistyo, the head of Indonesia's search and rescue agency, told a news conference in Jakarta.
Regional media reaction
The front page of the Beijing Times says: "Only three days before the New Year - where is the road to home?"
The reactions are similar in Indonesia, Singapore and Malaysia. Many on board were travelling to see their families for the year-end holiday season.
Media reports say the families are united in their prayers, hoping against hope for a miracle.
Many newspapers have published personal stories. One that has moved many people is about the Facebook post from the daughter of one of the pilots. It simply reads: "Papa come home."
Some are also calling 2014 a "year of tragedies" for the aviation industry, linking it with the flight MH370 that disappeared in March and hasn't been found yet.
Beyond the emotional coverage, commentators have been asking questions about aviation safety in the region.
South-East Asia has a fast-developing aviation sector with many carriers fighting for space, observers say. Most welcome the competition, but say safety norms have to be strengthened.
As the search resumed on Monday, Indonesia air force spokesman Hadi Tjahnanto said it was being focused on an area where an oil spill had been spotted but it was not clear if it had been caused by the plane.
Meanwhile the Associated Press news agency quoted an Indonesian official as saying that objects had been spotted in the sea near Nangka island by an Australian search plane. Again, it was not clear if they had come from the missing aircraft.
Mr Soelistyo said Indonesia was providing 12 ships, three helicopters and five military aircraft.
Malaysia was to deploy a C-130 plane, along with three ships, with Singapore lending a C-130 and Australia also providing help.
Indonesian officials said any ships in the area could help in the search. Vice-President Jusuf Kalla told journalists that "even fishermen" were being asked to join in.
AirAsia's share price fell 7% in morning trading on Monday in Kuala Lumpur.
Storm clouds
Flight QZ8501 had left Surabaya in eastern Java at 05:35 on Sunday (22:35 GMT Saturday) and was due to arrive in Singapore at 08:30 (00:30 GMT).
The pilot radioed at 06:24 local time asking permission to climb to 38,000ft (11,000m) to avoid the dense storm clouds.Indonesian officials said the request could not be immediately approved due to traffic, but the plane disappeared from the radar screens before the pilots gave any further response.
AirAsia boss Tony Fernandes said this was his "worst nightmare".
Mr Fernandes flew to Surabaya and later said: "We are very devastated by what's happened, it's unbelievable."
Oceanographer Simon Boxall told the BBC the plane should not be too difficult to find if it went into the water.
The sea floor is within diver depth, he says, and it would be "likely that they'll get answers within a few days".
Difficult year
The AirAsia Indonesia plane was delivered in 2008, has flown 13,600 times, completing 23,000 hours, and underwent its last maintenance in November.
The captain, Iriyanto, had more than 20,500 flight hours, almost 7,000 of them with AirAsia, Mr Fernandes said. The co-pilot is French national Remi Emmanuel Plesel.
The AirAsia group has previously had no fatal accidents involving its aircraft. The airline has set up an emergency line for family or friends of those who may be on board. The number is +622 129 850 801.
Special centres were set up at both Singapore's Changi airport and Juanda international airport in Surabaya.
There were 155 passengers on board, the company said in a statement:
137 adults, 17 children and one infant
Most were Indonesian but also one UK national, a Malaysian, a Singaporean and three South Koreans
The BBC understands that the British national is Chi-Man Choi
Two pilots and five crew were also on board - one French, the others Indonesian
This has been a difficult year for aviation in Asia - Malaysia's national carrier Malaysia Airlines has suffered two losses - flights MH370 and MH17.
Flight MH370 disappeared on a flight from Kuala Lumpur to Beijing in March with 239 passengers and crew. The wreckage, thought to be in the southern Indian Ocean, has still not been located.
