The MV Tycoon that sank at Christmas Island's port has a long history of defects, prompting a call by environmental groups for an overhaul of maritime regulations before similar incidents affect straits around the Great Barrier Reef and other sensitive marine environments.
The cargo ship is leaking phosphates and fuel and blocking supply routes to the island.
The general cargo vessel broke its mooring and sank on Sunday in the island's Flying Fish Cove after it was battered against the rocky coastline while loading phosphate.
With it went 102 tonnes of intermediate fuel oil, 11,000 litres of lubricant oil, 32 tonnes of diesel oil and about 260 tonnes of phosphate.
Locals are trying to mop up the spill on the island, noted for the famous annual red crab migration, which British naturalist David Attenborough once rated among his top 10 career moments.
Tourists flock to Christmas Island to enjoy its world-class diving and view whale sharks that migrate to the waters around the island from November until April.
Two thousand kilometres off the West Australian coast, it is also the site of a major detention centre for asylum seekers who arrive in Australian waters by boat.
The Tycoon, built in 1983, is owned by Taiwanese firm Ocean Grow International Ship Management but is registered under a Panamanian flag.
Greenpeace spokesman James Lorenz said an inspection in Malaysia in October 2011 revealed problems with the vessel's magnetic compass, ventilation, life buoys and other safety equipment.
In 2010, a long series of failings with its radio communications, abidance with international oil pollution legislation, navigational safety, lifesaving and fire safety equipment, resulted in the ship being delayed in Vietnam.
'Most pertinently, its mooring arrangements and load lines were also found to be faulty,' Mr Lorenz said. 'It is shocking that this kind of rust bucket is allowed to operate in Australian waters.
'With a planned tripling of coal export vessels transiting through the Great Barrier Reef in coming years, unless regulations are dramatically tightened, it is only a matter of time before we face a disaster of far greater magnitude.'
The Australian Transport Safety Bureau has sent a team to the island to investigate the sinking but bad weather continues to hamper the assessment of the spill and clean-up efforts.