Wang Hongli, commander of submarine 372, was praised by the Central Military Commission for "successfully dealing with a major sudden dangerous situation" during an underwater mission, the military's official People's Liberation Army Daily reported.
The crew "overcame various difficulties... And created a miracle in China's and the world's submarine history", said the report posted on the Defence Ministry website yesterday, without specifying any details.
Submarine 372 is reportedly a diesel-electric Kilo-class vessel that went into service in 2006 after Beijing bought it from Moscow.
Pipes in the main engine room were damaged by the increased water pressure and the vessel began sinking rapidly after losing power, it said.
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Wang and his crew reacted quickly, according to the report, shutting down nearly 100 valves and switches and operating dozens of controls, all within three minutes, before steering the submarine out of danger.
The crew risked their lives to "prove their loyalty", Wu Shengli, commander of the PLA Navy, was quoted as saying.
Military accidents and equipment malfunctions are rarely reported in China, where news about the armed forces is tightly controlled.