The Sri Lanka Navy rescued the crew and towed the ship 80 nautical miles off the coast after emergency repairs failed to save the ship and it sank on Wednesday night.

Sri Lanka's Marine Environmental Protection Authority (MEPA) is consulting legal advice to sue the ship owners under the Marine Pollution Prevention Act, The Sunday Times newspaper said.

"We are filing the case in terms of the Act's two clauses that deal with the offense of releasing the pollutant to sea," the newspaper quoted MEPA chairman Ranjith Kularatne as saying.

"We may also file a civil case to obtain damages and make them pay for towing charges."

The report said the ship's officers were produced before a magistrate and released on bail and were staying at a hotel in Trincomalee.

The ship had sunk before a salvage vessel from Greece arrived on the scene, the newspaper said. The ship's last port of call was Tuticorin.

The report said officials from Sri Lanka's National Aquatic Resources Agency had also rushed to Trincomalee to probe the incident.

Kularatne was quoted as saying that since the ship had sunk in deeper sea "in a non-fish breeding area and away from corals" the fallout may be minimal.