A blaze broke out on board the Kharg during a training exercise near the port of Jask, Iranian news agencies have reported.
The entire crew were able to safely disembark the huge vessel before firefighters battled to tackle the fire.
The Fars news agency reported: “All efforts to save the vessel were unsuccessful and it sank.”
The statement said efforts to extinguish the flames continued on the huge ship for as long as possible.
But the cause of the fire has not yet been revealed.
A Government spokesman told the Tasnim news agency that at the time of the fire, the ship had around 400 crew and students on board.
Some 20 people received minor burn injuries before the ship was evacuated. Nobody was seriously hurt.
The spokesman added the cause of the fire remains under investigation.
The Kharg, which Iranian news agencies have described as a “training ship”, is one of a handful of vessels belonging to the country’s navy that can provide replenishment at sea for its other ships.
The huge vessels can also lift heavy cargo and serve as a launch point for helicopters.
The Kharg was built in Britain and launched in 1977.
In 2019, a string of fires and explosions on several oil tankers around the Arabian Peninsula linked to Iran and Saudi Arabia sent tensions between the two countries surging and brought them close to war.
The trouble had began in May of that year when four tankers – two Saudi-flagged, one Norwegian-flagged and one Emirati-flagged – were damaged close to the UAE.
Just a few weeks later, two other vessels were also damaged.
The UK, US and Saudi Arabia later accused Iran of attaching limpet mines to the side of the tankers, which punched holes in the hull of the vessels and subsequently started fires.
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