Kenyan police seized the yacht in April after 6.7 kilogrammes (14 pounds) of heroin was found onboard, Interior Minister Joseph Nkaissery said in a statement.
"Any vessel, vehicle or plane found ferrying drugs or ivory under my watch will be destroyed," Nkaissery said, after the boat was sunk off the Indian Ocean coast.
"Kenya will not be used as a transit country nor will it be used as a drug trafficking base."
It was seized while at anchor in Kilifi, a sleepy Kenyan port, some 70 kilometres (43 miles) north of Mombasa.
It is the second time Kenya has sunk a drug smuggling boat, after President Uhuru Kenyatta watched the scuttling of a merchant vessel found with 377 kilogrammes (831 pounds) of heroin in August 2014.
East Africa has become a new route for drug smugglers.
The so-called Smack Track -- that leads from Afghanistan to the Makran Coast of Iran and Pakistan and across the Indian Ocean to East Africa -- is an alternative to the traditional opium trail via Central Asia and the Balkans.
Since then seizures have grown exponentially. Last year, nearly four tonnes of heroin was seized by piracy-patrolling warships of the east African coast, almost double the amount found in 2013.
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