The 2-month-old Boeing plane plunged into the Java Sea on Monday just minutes after takeoff from Jakarta, killing all 189 people on board.
"Based on the presentation of the head of the National Search and Rescue Agency, the coordinates of the suspected body of the aircraft have been found. We will send a team there to confirm," said armed forces chief Hadi Tjahjanto.
The disaster has reignited concerns about safety in Indonesia's fast-growing aviation industry, which was recently removed from European Union and U.S. blacklists, and also raised doubts about the safety of Boeing's new generation 737 MAX 8 plane.
Boeing Co. experts are expected to arrive Indonesia on Wednesday and Lion Air has said an "intense" internal investigation is underway in addition to the probe by safety regulators.
Locating the fuselage will bring the search effort closer to finding the airplane's flight recorders, which are crucial to the accident investigation.
Data from flight-tracking sites show the plane had erratic speed and altitude in the early minutes of a flight on Sunday and on its fatal flight Monday. Safety experts caution, however, that the data must be checked for accuracy against the plane's "black boxes," which officials are confident will be recovered.
Passengers on the Sunday flight from Bali to Jakarta have recounted problems that including a long-delayed takeoff for an engine check and terrifying descents in the first 10 minutes in the air.
Officials said the non-stop search effort has sent 48 body bags containing human remains to police identification experts.
Anguished family members have been providing samples for DNA tests and police say results are expected within 4-8 days.
Daniel Putut, a Lion Air managing director, said the airline and Boeing will meet Wednesday afternoon.
"Of course there are lots of things we will ask them, we all have question marks here, why? What's the matter with this new plane," he said.
Indonesia's Transport Ministry has ordered all Boeing 737 MAX 8 planes operated by Lion Air and national carrier Garuda to be inspected.
Boeing declined to comment about potential inspections globally.
The aircraft manufacturer told airlines in a bulletin, "Boeing has no recommended operator action at this time," according to two people familiar with the matter.