fire while docked in Mumbai early on Wednesday on the eve of India's Independence Day holiday.
The fully-loaded boat partially sank with 18 seamen on board. India's defence minister said a still-unknown number of personnel had "lost their lives in service of the country."
The incident deals a powerful blow not only to India's burgeoning naval ambitions but also to Russia's own flagging military prestige.
Moscow remains New Delhi's biggest defence partner and is keen to preserve a market it has nurtured with great care since Soviet times.
Official statistics show that eight of the 11 Project 877 submarines such as the INS Sindhurakshak Russia has built for export since the 1980s have been delivered to India.
"I do not believe that this incident will have a negative impact on Russia's military cooperation with India," the state-run RIA Novosti news agency quoted Moscow's Global Arms Trade Centre expert Igor Korotchenko as saying.
But Indian officials have voiced growing displeasure with their old partner's service - particularly concerning the cost-overruns and delays involved in the refit of a Russian aircraft carrier that now bears the name INS Vikramaditya.
Analysts believe that India is forced to continue purchasing Russian military parts because it still operates so many Soviet-era warplanes and vessels.
But New Delhi has also sought to expand its military trade ties with Washington in the past decade after remaining for so long under Moscow's care.
The US-based Center for Strategic and International Studies estimates that cumulative defence sales between New Delhi and Washington had grown "from virtually zero" 10 years ago to more than $8 billion today.
That trend has unnerved Russian officials who have already suffered humiliations from two deadly post-Soviet submarine disasters and a raft of other military and space setbacks.
The Kursk nuclear submarine tragedy claimed 118 lives when it sank in August 2008 while the Nerpa sub - eventually commissioned by India -- killed 20 Russian sailors when it caught fire while conducting exercises in November 2008.
The INS Sindhurakshak was under a Russian warranty until January 2014.
The Russian-built boat - commissioned in 1997 - underwent a refit lasting more than two years after it had caught fire in 2010 and had only left its Barents Sea repair dock at the end of January.
Russian officials were quick to report that India had voiced no complaints after receiving the submarine in April.
"There have been no claims or technical complaints," the United Shipbuilding Corporation's spokesman Alexei Kravchenko told Russian state television.
The Russian firm that refitted the submarine also stressed that the craft was fully operational when returned to India.
A spokesman for the Russian Zvyozdochka ship repair company told RIA Novosti that "certain issues" had been raised when the INS Sindhurakshak was inspected by experts at the Severodvinsk port on the Barents Sea.
The unnamed spokesman did not give further details about the nature of the issues but said they were part of the "normal working process".
Russia's Interfax news agency also carried a report citing an unnamed "military-diplomatic source" who claimed that the INS Sindhurakshak could have been the target of a terror plot.
"We cannot exclude the possibility that someone was trying to ruin the Indian people's main holiday - Independence Day - which is celebrated on August 14," the Russian official told the news agency.
The official speculated that the boat could not have suffered an accident while in its dock because most of its main systems would have been probably switched off. However no further evidence was given to back up the claim.