Russia’s defence ministry has said the Moskva naval missile cruiser, its flagship vessel in the Black Sea, has sunk, dealing a significant blow to Moscow’s offensive in southern Ukraine.

Ukrainian officials said on Thursday that the Russian vessel had been hit by one of their anti-ship missiles, causing an explosion on board.

The Pentagon assessed that the ship had “experienced significant damage” and was battling a fire, a senior US defence official said. “We can’t say definitively what caused this explosion and the subsequent fire,” the person added. “It could have been the result of a missile strike and it could have been something else. We just don’t know.”

The Russian defence ministry reported that the explosion was caused by a fire onboard, which in turn set off ammunition stores. It said the causes of the fire were being investigated and that all crew had been evacuated safely.

Russian state news agencies reported that the Moskva sank while being towed to port during a storm and cited the ministry as saying the ship lost stability because of damage sustained during the fire.

The sinking of the vessel is a serious setback for the Russian navy as Moscow regroups its forces for a renewed offensive in south-eastern Ukraine, after it was forced to retreat from the area around Kyiv, the capital.

“The loss of the Moskva is a significant loss . . . in terms of credibility for the Russian forces, regardless of how it happened,” a western official said.

If it has been vulnerable to a missile attack by Ukrainians, “that questions Russia’s competence”, the official said, adding that if the sinking were “because of a fire which then resulted in the detonation of its magazine, where ammunition is stored, that is also incompetence”.

Either way it is a “massive blow to Russia’s sense of pride in its military . . . a military that’s modernised itself over the last decade”, the official said.

The US defence official said four or five Russian ships operating in the northern Black Sea had moved south, further away from the coast.

Built in Ukraine during the Soviet era, the Moskva was one of just seven Russian cruisers, two of which had been inoperative in recent years.

The navy had been expected to play a significant role if Russia launched an amphibious assault on Odesa. However, such an assault has not materialised.

Instead, the vast majority of Russia’s military operation has taken the form of a land-based artillery war, with the navy conducting some large-scale amphibious demonstrations around the Black Sea coast.

Ukraine’s Luch construction bureau, which developed the country’s Neptune anti-ship missiles, claimed two of its missiles used by the country’s military were responsible for the strike on the Moskva. Luch said it was the second successful use of their Neptune missiles against a Russian navy vessel.

“The anti-ship missile system 360MC Neptune once again hit an enemy warship,” Luch wrote in a Facebook post.

The missile hits were “so devastating that this time official Russian information sources were forced to admit the loss of their own ship. An accurate volley on the flagship of the enemy fleet is the highest award and recognition of our work,” Luch said.

Additional reporting by John Paul Rathbone in London and Courtney Weaver in Washington