The Indian coastguard was trying on Monday to contain oil from a badly-listing container ship that collided with another vessel near the city of Mumbai, a defence ministry spokesman said.
Six coastguard ships were working to minimise the impact of the spill from the Panamanian-registered MSC Chitra, while a coastguard helicopter dropped oil-dispersal spray on the slick, Captain M. Nambiar told AFP.
Environmental emergency teams have been put on alert to mobilise for a clean-up operation, while fishermen have been told not to put to sea until the all-clear has been given.
The vessel, which was five nautical miles from shore when the accident occurred on Saturday, has listed dangerously to its port side. Some 200 containers have fallen from the ship and are being collected.
Nambiar described the ship's position as "precarious", adding: "It's difficult to get on board to locate the point of leakage."
Oil had spread around the ship and could be carried further depending on the tide and current.
Broken patches of oil have been cleared around Elephanta Island, a World Heritage Site and tourist attraction in Mumbai Harbour, the defence ministry said in a statement on Sunday.
Prime Minister Manmohan Singh called for a report from the shipping ministry into the spill, while environment minister Jairam Ramesh told parliament that legal action had been launched against the owners of the two cargo ships.
The MSC Chitra was leaving Mumbai when it was in a collision with the MV Khalijia-II, another Panamanian-registered ship, which was manoeuvring into port.
Thirty-three crew members were rescued. Both ships developed cracks following the collision.
The announcements came as opposition lawmakers in parliament demanded that any fishermen suffering loss of income from the oil spill be compensated.
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