A cargo ship has sunk off Japan's southern islands with the suspected loss of 20 crew members.

According to coastguards, only five of the Nasco Diamond's 25 crew have been accounted for after the Panama-registered ship went missing some 340km south of Iriomote Island, in the Pacific, early yesterday morning.

The 17,000-tonne Nasco Diamond left Indonesia on 4 November for China, carrying 55,000 tonnes of nickel.

According to local reports, rescued crew members told coastguards their ship had sunk. Japanese officials said a search and rescue operation was continuing.

It was not immediately clear what caused the ship to sink, as weather conditions in the area were calm with moderate wind, good visibility and no rain.

One of the rescued crew members was quoted as saying: "When I was in the engine room, water suddenly came in, and then I jumped into the sea, wearing a life jacket."

A Japanese patrol boat recovered a life raft drifting some 28km south-west of the spot where the ship was believed to have sunk, but found no one inside.

An oil slick was spotted on the surface of nearby waters, but coastguard officials have yet to locate the vessel.

The area where the ship went missing is near a disputed island chain, where a Chinese fishing trawler collided with Japanese coastguard vessels in September, sparking a heated diplomatic dispute.