The Marshall Islands-registered tanker, the Ece, sank 90 kilometres west of the French port of Cherbourg as it was being towed to shore, local maritime spokesman Yann Bizien told news agency AFP.
Experts agreed that the ship's cargo of chemicals, 10,000 tonnes of phosphoric acid, did not present a major threat to the marine environment but serious concerns remained about the 80 tonnes of oil fuel it carried in its tanks.
"The risk of pollution is not zero," Mr Bizien told a press conference.
The tanker, loaded with phosphoric acid, had been listing badly following a collision in international waters before dawn on Tuesday with a Maltese registered cargo ship carrying 26,000 tonnes of phosphorus.
Its 22 crew members had to be evacuated on Tuesday by British rescue services, but none were seriously harmed in the incident.
French and British authorities have activated an emergency accident plan, Mr Bizien said, and the area, near the entrance to a busy shipping lane, is being tested for traces of surface-level pollution.
Two French navy vessels, patrolling the area along with the French tugboat Abeille Liberte, had so far found no sign of a change in water acidity levels.
"Slight iridescences", suggesting a possible oil leak, had however been observed at the surface, according to the official.
A French navy mine sweeper will deploy an underwater robot to search the wreck for possible leaks, and a specialised aircraft would also overfly the area to detect any spills of chemicals or oil, he added.
Divers were also set to examine the ship's hull, but not before its safety is ensured, Mr Bizien said.
A major leak of phosphoric acid could be dangerous, even deadly, for human divers, according to experts.
The French authorities have declared a fishing ban within 1.8 kilometres of the wreck.
According to the French anti-pollution agency, the Centre of Documentation, Research and Experimentation on Accidental Water Pollution, phosphoric acid does not present a serious threat to the ocean environment.
Even if the entire cargo spilled into the Channel, it would have a "fleeting and localised lethal effect," according to the centre's deputy head Christophe Rouseau.
The acid, used to make phosphates for fertilisers, to rust-proof metals, and as a flavouring in soft drinks, would very quickly dissolve in the sea water, and the area's pH, or acidity level, would return to normal, he said.
But the French environmentalist group Robin des Bois deplored even the limited pollution that could ensue.
"Acid is a dangerous, highly concentrated product that will burn all flora and fauna within several hundred metres of the cargo ship," said the group's spokesman Jacky Bonnemains.