The stricken vessel had been ablaze for a whole week after colliding with another ship, but sunk yesterday after its already weakened hull was destroyed by a series of large explosions.
Rescue ships have already recovered three bodies and Iranian officials now say the remaining 29 crew and passengers are presumed dead.
The Sanchi was carrying almost 136,000 tonnes – equivalent to nearly one million barrels – of condensate, an ultra-light and extremely flammable type of crude oil.
Its highly toxic cargo has now spread out in a massive slick covering more than 55 square miles, according to Japanese authorities.
This makes it the biggest tanker spill since 1991 when 260,000 tonnes of oil leaked off the Angolan coast.
Coastguard ships from Japan, China and South Korea are now battling to contain the slick amid growing concerns over the environmental impact.
Experts fear the ship’s sinking could be far worse than if the remaining condensate oil on board had continued to burn.
The sinking will likely spill the remaining condensate as well as the tanker’s bunker fuel, a heavy oil which powers the ship’s engines.
Bunker fuel is the dirtiest kind of oil and extremely toxic when spilled, while condensate is also poisonous to marine life.
A Chinese salvage team was able to board the tanker and recover two bodies from the over the weekend.
They were also able to recover the ship’s voyage data recorder, or ‘black box’, from the bridge before thick toxic smoke forced them off the tanker.
Chinese authorities say the recovery of the device should shed light on exactly what happened at the time of the collision.
A third body, presumed to be one of the crew, was found in the ocean near the ship on Monday and has been taken to Shanghai for identification.
Rescue ships had initially expressed hopes the remaining 29 crew members and passengers would be found alive, but Iranian officials said yesterday everyone on board is now presumed dead.
The Sanchi burst into flames during the evening of January 6 after it hit a grain ship 160 miles off the coast of Shanghai.
Rough seas and thick clouds of toxic smoke produced by the burning condensate hampered the efforts of coastguard boats.
High winds eventually pushed the flaming wreckage into Japanese waters, some 195 miles west of the island of Amami Oshima, one of the northern islands in the Ryukyu island chain that includes Okinawa.
Greenpeace said the explosion and sinking had occurred in “an important fish spawning ground”.
A statement issued by the conservation charity said: ”At this time of year the area is used as wintering ground by common edible species such as hairtail, yellow croaker, chub mackerel and blue crab. The area is also on the migratory pathway of many marine mammals, such as humpback whale, right whale and gray whale.”