"I confirm that the fishing vessel was rammed. The 10 fishermen on board are on land now. They are safe. The ship sank," a Vietnamese maritime safety official told AFP.
Yesterday's incident was the first reported sinking of a ship since the dispute flared in early May.
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The crew of the sunken Vietnamese boat told authorities the attack occurred near the oil rig, which is positioned in the vicinity of the Paracel Islands, said the official.
The official, with the Vietnam Regional Maritime Search and Rescue Coordination Centre in the city of Danang, spoke on condition of anonymity.
No immediate public comment was seen from Vietnam's government.
But in Japan, government spokesman Yoshihide Suga said if the report was true, it was an "extremely dangerous act".
"It's important that relevant countries abstain from unilateral actions that raise tensions and that the countries act cool-headedly, observing international laws," said Suga, the chief cabinet secretary.
Relations between communist neighbours Vietnam and China have plummeted over the oil rig's presence, which has exacerbated an increasingly heated dispute of territorial claims in the area.
Tensions over the oil rig sparked violent anti-Chinese riots in Vietnam. Beijing says four Chinese citizens died in the unrest, while Vietnam says three Chinese died.
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