Palau police shot dead a Chinese fisherman and three men in a police spotter plane were feared killed in a dramatic confrontation off the Pacific island, officials said Monday.

The fisherman died in a hail of bullets designed to stop a Chinese vessel fishing illegally in Palau waters, according to charges filed by assistant attorney general Timothy McGillicuddy.

Palau President Johnson Toribiong confirmed a pilot and two police officers were missing 48 hours after their plane crashed while searching for the fishing fleet's mothership, which had been set alight.

Five men, believed to be all Chinese, were taken from the burning ship and have been charged with unlawful entry and illegal fishing in Palau waters, according to the charge sheet.

Police officers from Palau's Fish and Wildlife Division fired warning shots at the fishing boat when it ignored pleas to stop after being detected near a conservation area at dawn on Saturday.

"The confrontation included an officer involved shooting and one of the six individuals on the green fishing boat later succumbed to injuries he obtained during the confrontation," police officer Helenda Oimei said in an affidavit.

Toribiong issued a statement in which he did not mention the shooting or arrests but said a US-licensed pilot and two police officers were missing after their aircraft crashed.

More than three hours after the aircraft was due to return, the pilot radioed that his navigational systems had failed and he was running out of fuel.

"They left on a police mission to film the area where a PRC (China) mothership involved in the raid of Kayangel State's marine resources was burned by its own crew to destroy the ship and its cargo," Toribiong said.

"Officer Earl Decherong, one of the two police officers on board, using a radio telephone, called to say they were gliding to make a water landing and that they could see no light or land."

There had been no sign of the plane nor the three men despite an extensive search, the president said.

Palau closely guards its territorial waters after declaring the world's first shark sanctuary in 2009, banning shark fishing in its exclusive economic zone, which covers almost 630,000 square kilometres (240,000 square miles) of the northern Pacific.

The charge of unlawful entry into Palau, which has a population of 20,000, carries a penalty of up to two years imprisonment and a fine of $50,000.