Oil from a broken pipeline has seeped into the Yellowstone River and contaminated a Montana town’s water supply, the U.S. Environmental Protection Agency said Monday evening.

The agency described the crude spill of roughly 1,200 barrels as significant. It occurred Saturday morning less than 10 miles south of Glendive, a town of about 5,000 residents which is roughly 40 miles west of the North Dakota border.

“The...