Vietnam on Tuesday accused a Chinese ship of ramming and sinking one of its fishing boats, fanning territorial tensions over Beijing's deployment of an oil rig in contested waters.

The incident, which China's rival Japan described as "extremely dangerous", comes during an ongoing tense confrontation between the communist neighbours in the South China Sea that has triggered international alarm.

Vietnam summoned a representative of Beijing's embassy to formally protest the incident, which it said followed recent cases of damage to its fishing boats and assault of its fishermen by Chinese forces.

The crew of the sunken vessel, who were rescued by other Vietnamese ships after the Monday afternoon incident, said their boat was encircled by 40 Chinese vessels before being rammed, the official Vietnam News Agency reported.

"Once again, Vietnam demands China to end inhumane acts that seriously infringed on the life, properties and legitimate interests of Vietnamese fishermen," Hanoi's foreign ministry spokesman Le Hai Binh said in a statement.

The 10 fishermen on board were all safe, according to a second Vietnamese official, who said the sinking occurred about 12 nautical miles southwest of the oil rig.

Beijing blamed the Vietnamese vessel, saying it had "forcefully intruded" into the area of the oil rig and capsized after colliding with a Chinese fishing boat.

"I want to stress that the direct cause of this incident is that the Vietnamese side insisted on disturbing the normal work of the Chinese side," said Beijing's foreign ministry spokesman Qin Gang.

"Some countries fantasise that (China) will sit idly by while its interests and sovereignty are damaged," he added.

Qin said the rig had moved to a new location, but Vietnamese state media said it was still within what Hanoi considered its territory.

It was the first ship reported sunk since the dispute flared in early May. The standoff has seen repeated skirmishes between dozens of Chinese and Vietnamese vessels, including many civilian and fishing boats.

The confrontations have included reported rammings and the use of water cannon.

A dozen Vietnamese fisheries surveillance officers have been injured in rammings since the start of May, the deputy commander of the Vietnam Marine Police, Ngo Ngoc Thu, told AFP.

- Call for cool heads -

Relations between frequently testy neighbours Vietnam and China have plummeted over the oil rig's presence, which has worsened an increasingly heated dispute over territorial claims in the area.

The oil rig is positioned in the vicinity of the contested Paracel Islands.

In Japan -- which has a thorny maritime territorial dispute of its own with Beijing in the East China Sea -- government spokesman Yoshihide Suga said if the report was true, it was an "extremely dangerous act".

"It's important that relevant countries abstain from unilateral actions that raise tensions and that the countries act cool-headedly, observing international laws," said Suga.

But China's Qin urged Japan "to respect historical facts about China's resumption of the exercise of sovereignty over the Xisha Islands after WWII and stop making irresponsible remarks," according to official news agency Xinhua.

The Paracel Islands are called Xisha by Beijing.

Qin added that China would not accept "unreasonable remarks or any interference from other countries" and that drilling was done in waters that are "inherently Chinese", Xinhua said.

Tensions over the oil rig sparked violent anti-Chinese riots in Vietnam earlier this month. Beijing says four Chinese citizens died in the unrest, while Vietnam says three Chinese died.

Hundreds of people have been detained over the riots and two Vietnamese men on Sunday became the first sentenced to jail, receiving terms of one and three years.

Vietnamese Prime Minister Nguyen Tan Dung said last week that China's placement of the rig in the contested area had "seriously threatened peace".

China claims nearly all of the sea, even waters approaching the coasts of its neighbours, and has become increasingly assertive in staking those claims.

Vietnam, the Philippines, Brunei and Malaysia, as well as Taiwan, have competing claims to parts of the sea.

In recent years China has begun aggressively patrolling contested waters, using fishing bans and patrol boats to keep foreign trawlers out, according to Vietnamese officials and fishermen.

Hanoi says hundreds of fishing boat crews have been arrested by Chinese authorities over the past few years.

Beijing for its part estimates that more than 11,000 Chinese fishermen experienced attacks, robberies or detention by foreign vessels between 1989 and 2010.