The INS Vindhyagiri suffered damage and a fire broke out near the engine room as she returned to the city's naval dockyard on Sunday with the families of navy personnel on board.
"The cause of the accident is yet to be ascertained. That will only happen subsequent to the naval board of inquiry that will be set up," defence ministry spokesman Captain M. Nambiar told AFP.
Firefighters and military personnel battled thick smoke to bring the fire on the Leander class frigate under control as she was towed back to the dockyard from the busy shipping channel off India's financial capital.
Nambiar said the ship, which was commissioned in 1981, was listing in the dock's shallow waters because of damage to her hull but would right herself once pumping began.
Defence officials in New Delhi said that ammunition on board was cleared and that "all efforts" were made to contain the fire and flooding.
"Necessary measures have also been taken to prevent any spillage of oil from the ship," a statement said.
About 150 people were on board the vessel and had been on a short excursion when the collision happened with the Cyprus-flagged MV Nordlake, which was leaving Mumbai's Jawaharlal Nehru Port Trust (JNPT).
No one was injured, said Nambiar.
Six months ago, two cargo vessels collided off Mumbai, sending containers spilling into the sea, grounding one of the ships and causing it to list badly.
Shipping traffic into and out of JNPT and the Mumbai Port Trust -- which together handle about 40 percent of India's maritime cargo -- was severely disrupted after the waterway was closed due to the hazard.
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