India's navy said all 18 sailors on board a submarine which exploded and sank on Wednesday are feared dead, after divers found no signs of life when they entered the stricken vessel.

Meanwhile, an inquiry has been ordered into what's thought to be India's worst naval disaster in more than 40 years in which the fully armed INS Sindhurakshak, which was recently refitted in Russia, caught on fire after an explosion and subsequently sank in a military shipyard.

Key points: All 18 sailors on board are feared dead

All 18 sailors on board are feared dead Navy divers found 'no signs of life' upon entering the vessel

Navy divers found 'no signs of life' upon entering the vessel The submarine sank following an explosion early Wednesday (local)

The submarine sank following an explosion early Wednesday (local) The fully armed INS Sindhurakshak was recently refitted in Russia

The fully armed INS Sindhurakshak was recently refitted in Russia Submarine lacked some modern safety equipment

As many as 18 soldiers were believed to have been onboard and defence minister AK Antony confirmed that some had died.

Chief of naval staff D.K. Joshi said no sign of life had been detected by divers who managed to enter the sub through the main hatch in a bid to refloat the vessel.

"While we hope for the best, we have to prepare for the worst," he told reporters in Mumbai, adding that there was a possibility some crew might have found air pockets but "the indicators are negative".

He also admitted that the incident had left a "dent" in the country's defences at a time when the world's biggest democracy has been expanding its armed forces rapidly to upgrade its mostly Soviet-era weaponry and respond to what is perceived as a growing threat from regional rival China.

The blast came days after New Delhi trumpeted the launch of its first domestically-produced aircraft carrier and the start of sea trials for its first Indian-made nuclear submarine.

Fire may have set off torpedos

It is not certain what caused the explosion, but reports suggest it may have occurred while maintenance was being carried out on the submarine's battery system.

The blast damaged other ships nearby at the naval base.

Rahul Bedi, a defence expert with IHS Jane's Defence Weekly, cited reports a saying the fire set off weapons on the submarine.

"Some agencies are reporting that the fire in fact set off two torpedos, one of which skimmed past a submarine that was berthed nearby and another sailed harmlessly into either the water or some other buildings," he said.

The NDTV channel showed grainy and shaky footage of the fierce explosion, which lit up the sky at the naval dockyard shortly after midnight.

"There were two to three explosions and the night sky lit up briefly," said eyewitness Dharmendra Jaiswal, who manages a public toilet near the dockyard and was sleeping there overnight.

"There was a lot of smoke and I thought it was some major repair work."

The Mumbai dockyard, which is a restricted area, was closed to media.

Smoke and flames rise from an explosion on a submarine at the naval dockyards in Mumbai, India. ( Twitter: Vikalp Shah )

Same submarine caught on fire in 2010, killing a sailor

In February 2010, the INS Sindhurakshak also suffered a fire while docked in Visakhapatnam, Andhra Pradesh state, killing a 24-year-old sailor and leaving two other crew members with burns.

There were fears that today's explosion might have damaged other navy vessels in the Mumbai dockyard, a colonial-era facility with civilian and military sections that employs more than 10,000 people.

Mr Bedi said the submarine was commissioned from Russia in 1997 and lacked some modern safety equipment common to newer vessels.

"They don't have escape routes in the event of accidents unlike some of the modern submarines," he said.

"The major concern is of India's submarine capability depreciating fast.

"I think out of 14 diesel-electric subs, 12 are operational.

"That's very inadequate and a big operational drawback for the Indian navy."

The Russian firm which refitted the submarine said the craft had been fully operational when returned to India in January.

A spokesman for the Russian Zvyozdochka ship repair company told RIA Novosti that "certain concerns" were raised when the Russian-made INS Sindhurakshak was inspected by experts at the Severonisk port on the Barents Sea.

But he said India raised no objections about the state of the diesel-powered vessel when receiving it from Russia.

INS Sindhurakshak is a kilo-class submarine which normally operates with a crew of 53 people and can sail on its own for 45 days, the Indian navy website says.

Russia is still the biggest military supplier to India, but relations have been strained recently by major delays and cost overruns with a refurbished aircraft carrier, the INS Vikramaditya.

ABC/wires