Indian Defence Minister AK Antony has described two huge explosions and a fire on an Indian submarine berthed at a Mumbai dockyard as a "shocking tragedy".
Eighteen sailors on board the INS Sindhurakshak are feared dead and divers are now trying to refloat the partially submerged vessel.
Mr Antony offered "heartfelt condolences" to relatives.
It is not clear what caused the blasts. Sabotage has not been ruled out.
"A board of inquiry will cover the entire spectrum of the incident, we cannot rule out sabotage at this stage but all the indicators at this point do not support that theory," navy chief Admiral DK Joshi said.
"Divers have opened the first hatch of the [submerged] submarine and are in the process of going down now. A detailed examination can only be carried out after the water is pumped out and the boat has come back to the surface."
Earlier, officials told the BBC they suspected the accident to be the result of an on-board error, not involving any outside agency.
No bodies have yet been recovered.
Correspondents say that India has steadily developed its naval capabilities in recent years, motivated by its rivalry with neighbouring China. But the country's military has encountered numerous scandals and difficulties as it has done so.
On Tuesday the federal auditor suggested that the government might have paid too much for 12 helicopters from Anglo-Italian company Agusta Westland, saying procurement procedures designed to ensure value for money were not properly followed.
The blast on the INS Sindhurakshak took place after midnight (18:30 Tuesday GMT) and firefighters spent four hours putting out the blaze.
Officials said the diesel-powered vessel had been badly damaged.
One navy official told the BBC that "surviving an explosion of this huge scale" was rare.
Many sailors managed to jump to safety after the blast. Some were taken to hospital.
Dramatic images on Indian television showed a large fireball illuminating the sky. Smoke from the blaze could be seen in many parts of the city.
The Russian-built submarine was upgraded recently at a cost of $80m (£52m).
Russian firm Zvyozdochka, which refitted the submarine, said the vessel had been fully operational when it was returned to India in January. Reports from Russia say specialists are ready to help with the aftermath.
"It's a great loss to us... it's the greatest tragedy of recent times," Mr Antony told reporters in Delhi before leaving for Mumbai to visit the site of the incident.
The INS Sindhurakshak, which is powered by diesel and electricity, is one of the 10 Kilo-class submarines bought from Russia between 1986 and 2000. It is equipped with Russian Club-S cruise missile systems.
The submarine was sent to Russia for the refit in 2010 after a sailor on board was killed by a fire that broke out in the battery compartment while the submarine was docked at the Vishakhapatnam naval base in February that year.
Wednesday's explosion comes just days after India's navy launched its first home-built aircraft carrier, hailed by defence officials as a "crowning glory".
Last year, India bought a Russian Nerpa nuclear submarine for its navy on a 10-year lease from Russia at the cost of nearly $1bn, making it part of a small group of nations to operate nuclear-powered submarines.
India and Russia are long-time allies and Russia supplies about 70% of India's military hardware.