The vessel Prospect went aground on rocks known as Skibby Baa at the north end of Lerwick Harbour in Shetland at 6.45pm last night, coastguard officials said.
“We launched the Lerwick lifeboat, tasked the Lerwick coastguard team, the Lerwick Harbour tug The Knab was also on scene,” a spokeswoman for Shetland Coastguard said.
The coastguard helicopter Rescue 102 was also scrambled to the sinking vessel, she said.
Pumps from the lifeboat, helicopter and a dive vessel The Valkyrie were put on board Prospect.
The coastguard spokeswoman said: “The vessel floated off, by that stage we had two of the crew off and then the lifeboat took the skipper and another person off.
“She was towed away from the main navigational channel of Lerwick Harbour and she sank.”
Once the tow from the lifeboat was released The Knab pushed Prospect further out of the way before she sank, the spokeswoman said.
There were no reports of injuries and decisions about a salvage or recovery plan for Prospect have yet to be made.
The Maritime & Coastguard Agency Counter Pollution team are monitoring the situation, a spokeswoman for the agency said.