The Liberian-flagged MSC ELSA 3, listed as a 184-metre (603-foot) freight ship, went down off the coast of Kerala on Sunday, with all 24 crew members rescued.
It was carrying 640 containers, including 13 with hazardous cargo and 12 containing calcium carbide, a chemical used for fertiliser production and steelmaking. The vessel also contained some 370 tonnes of fuel and oil.
"The Coast Guard is taking action to prevent the spread of oil using two ships," Kerala's government said in a statement.
"The work of spraying dust to destroy the oil is in progress using a Dornier aircraft".
India's defence ministry said the ship sank "due to flooding" some 38 nautical miles southwest of Kochi, raising concerns for the "sensitive marine ecosystem along Kerala's coast".
The government has put coastal areas on high alert and warned people not to touch or approach any containers -- some of which have already washed up along the coast.
The ship was sailing between the Indian ports of Vizhinjam and Kochi when it ran into trouble on Saturday and issued a distress call.
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