India's defence ministry says a Pakistani fishing boat bound for India blew up, killing all four people on board, after the Indian coast guard tried to stop and search it.

Indian intelligence said the crew was planning "an illicit transaction" when the vessel was intercepted on New Year's Eve in the Arabian Sea, 365km off India's western coast, according to a government statement released on Friday.

In a first reaction, Pakistan's Foreign Ministry said it was unclear whether the incident had happened at all.

It was not possible to verify independently the Indian government's account.

Late on Friday, the Indian Express newspaper reported on its website: " ... new evidence has begun to emerge that the victims of the operation might have been small-time liquor and diesel smugglers, ferrying bootleg cargo from the port of Gwadar to other fishing boats which were to have carried it into Karachi’s Keti Bandar harbour.

"There is also a suggestion of use of disproportionate force since the fishing boat did not have an engine capable of outrunning Indian interceptors."

The report quoted "highly placed government sources" as saying Indian "intelligence had no link to terrorism, and made no reference to any threat to India".

India put security agencies on nationwide alert for an attack last month in the lead-up to a visit by US President Barack Obama at the end of January.

Ajay Kumar Pandey, a spokesperson for the Indian Coast Guard, declined to comment when asked whether the explosives suspected to be on board the boat were intended for use in a possible attack.

Blurred photographs

The Indian Defence Ministry released blurred night-time photographs of a burning fishing boat, with time stamps of 4am on New Year's Day.

No name or other distinguishing characteristics were visible on the burning boat. No other physical evidence was presented by the Indian government.

The coast guard chased the Pakistani boat for almost an hour and fired warning shots before it stopped, the Indian statement said, adding that the crew hid below deck and set the boat on fire.

India's vulnerability to attacks along its long coastline was exposed in 2008 after the seaborne assault by Pakistani nationals on Mumbai, the nation's financial capital.

Ten Pakistani attackers arrived on a rubber boat in Mumbai for the commando-style assault on two luxury hotels, a train station and a Jewish centre that killed 166 people.

Since the attack, India has upgraded coastal security, spending money on patrol vessels, helicopters and building a coastal radar network.