The incident happened yesterday when the CB90H attack boat set out for a routine sea patrol on their way to Pulau Layang Layang atoll, which is part of the disputed Spratly islands in the South China Sea, when it went off the radar with the Sepanggar Navy base.
It had last communicated with the base requesting permission to turn back from its mission due to bad weather.
China claims almost all of the sea, a vital avenue for world trade that is also believed to harbour vast oil and gas reserves.
Its last known position was some 20 nautical miles northeast of Pulau Mangalum.
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New Straits Times, quoting unnamed sources, said three ships have been deployed from the Kota Kinabalu naval base for the search and rescue mission.
Air assets from the Malaysian Maritime Enforcement Agency have also been roped in to help with the search near Pulau Mangalum and Pulau Gaya.
Authorities believe the missing vessel may have lost contact with the base after being hit by strong waves.