India's navy chief resigned on Wednesday after a submarine accident off the coast of Mumbai saw two sailors missing and another seven injured, the defence ministry said.

"Taking moral responsibility for the accidents and incidents which have taken place during the past few months, the Chief of Naval Staff Admiral DK Joshi today resigned," a ministry statement said.

The seven sailors suffered breathing problems after trying to contain the smoke which filled the living quarters of the INS Sindhuratna during a training exercise, according to the navy.

Another two crew members have not yet been found on the Russian-built submarine, which was still seaworthy after the incident and was returning to port in Mumbai, the statement said.

The incident comes after 18 naval crew were killed in August last year when the fully-armed Russian-built INS Sindhurakshak exploded in flames and sank in a military shipyard in Mumbai.

The disaster was thought to be the Indian Navy's worst since the sinking of a frigate by a Pakistani submarine during a war with its neighbour in 1971.

Last month another submarine, INS Sindhughosh ran aground while returning to Mumbai harbour. No loss of life or damage was reported.