The tanker, carrying 136,000 tonnes of oil condensate, caught fire following the collision Saturday night and its crew of 30 Iranians and two Bangladeshis were missing, the ministry said in a statement.
The other vessel had been damaged but "without jeopardising the safety of the ship" and all its 21 Chinese crew had been rescued, it added.
The tanker was still ablaze Sunday, with images broadcast by state television channel CCTV showing the ship in the grip of an intense fire, enveloped in clouds of black smoke.
The Panamanian-flagged 274-metre (899-foot) tanker "Sanchi" was operated by Iran's Glory Shipping and was heading to South Korea with its cargo, the ministry said.
The accident occurred in waters about 160 nautical miles east of Shanghai.
The second vessel involved was a Hong Kong-flagged cargo ship carrying 64,000 tonnes of grain.
Chinese maritime authorities have dispatched eight ships for the search and rescue operation and South Korea has sent a plane and coastguard ship to help, the official Xinhua news agency said.