Media minister Nalinda Jayatissa said the second Iranian warship was just outside Sri Lankan waters, but gave no further details.

President Anura Kumara Dissanayake was meeting top officials Thursday to discuss a response to an Iranian request to enter the safety of the island's waters, official sources said.

They said the vessel was carrying more than 100 crew and feared they too could be targeted the same way a sister vessel was sunk by a US submarine just off Sri Lanka's southern coast on Wednesday.

The sinking came as the war sparked by a joint US-Israel attack on Iran continued to spread across the Middle East and beyond.

Authorities in the southern port city of Galle, meanwhile, were making preparations Thursday to hand over the remains of 87 Iranian sailors killed in the torpedo attack claimed by the US military.

Officials at the main hospital in Galle said 32 rescued Iranians were still being treated under tight security provided by police and elite commandos.

The Emergency Treatment Unit was off limits to visitors and other patients, with the medical authorities setting up a separate ward for the Iranians.

"Most of them have minor injuries, but there were a few with fractures and burns," a nurse at the hospital said, without giving her name.

Navy spokesman Buddhika Sampath told AFP that Sri Lankan navy vessels were continuing their search for missing Iranian sailors.

The vessel had issued a distress call at dawn on Wednesday but completely sunk by the time a Sri Lankan rescue ship reached the area.

The attack was just 40 kilometres (25 miles) south of Galle, the local navy said.

The warship was returning after attending a military exercise in India's eastern port of Visakhapatnam.

Iran has not yet commented on the sinking.

Sri Lanka has remained neutral and has repeatedly urged dialogue to resolve the conflict in the Middle East.

Iran is a key buyer of Sri Lankan tea, the country's main export commodity.