
All four people on board the vessel from near Karachi are believed to have been killed in the dramatic episode in the Arabian Sea on New Year's Eve, according to India's defence ministry.
Indian Coast Guard ships and aircraft tried to intercept the boat near the maritime border with Pakistan, around 365 kilometres (225 miles) from the coastal state of Gujarat, following an intelligence tip-off.
"However, the boat increased speed and tried to escape away from the Indian side of maritime boundary. The hot pursuit continued for nearly one hour," a defence ministry statement added.
Although the boat did eventually stop after warning shots were fired, the four-man crew then hid themselves below deck before setting the boat on fire which triggered a large explosion.
"Due to darkness, bad weather and strong winds, the boat and persons on board could not be saved or recovered. The boat burnt and sank in the same position, in early hours of January 1," said the statement.
Although the defence ministry would only say that the crew were planning "some illicit transaction", it also stated that the boat was carrying explosives.
The incident has evoked memories of the 2008 Mumbai attacks when militants managed to sneak into India's financial capital by sea and then began a 60-hour siege of India's economic capital that left 166 people dead.
India reacted furiously last month to a Pakistan’s decision to grant bail to the alleged mastermind of the Mumbai attacks, although he has since been detained again.
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