The MT Terra Nova was heading for the central city of Iloilo when it capsized in Manila Bay, nearly seven kilometres (4.3 miles) off Limay municipality in Bataan province, near the capital, in the early hours.
The vessel went down as heavy rains fuelled by Typhoon Gaemi and the seasonal monsoon have lashed Manila and surrounding regions in recent days.
An oil spill stretching several kilometres has been detected in the busy waterway.
"We are racing against time and we will try to do our best to contain it immediately and stop the fuel from leaking," Philippine Coast Guard spokesman Rear Admiral Armando Balilo said at a briefing.
He warned that if all the oil in the tanker were to leak, it would be the biggest spill in Philippine history.
"There is a big danger that Manila will be affected, even the shoreline of Manila, if the fuel will leak, because it is within Manila Bay," Balilo said.
Thousands of fishermen and tour operators are dependent on the waters for their livelihoods.
Transport Secretary Jaime Bautista said 16 of the 17 crew members had been rescued from the stricken vessel.
A search was underway for the missing crew member, but Bautista said strong winds and high waves were hampering response efforts.
Four of the crew were receiving medical treatment.
A photo released by the coast guard showed the MT Terra Nova almost entirely submerged in rough seas.
Investigation ordered
An oil slick stretching about 3.7 kilometres was being carried by a "strong current" in an easterly, north-easterly direction, the coast guard said in a report.
Coast guard Commandant Admiral Ronnie Gavan said he ordered a probe into the incident.
Marine environmental protection personnel have been mobilised to help contain the slick.
"It will definitely affect the marine environment," Balilo said, describing the amount of oil on the ship as "enormous".
One of the worst oil spills in the Philippines was in February 2023, when a tanker carrying 800,000 litres of industrial fuel oil sank off the central island of Mindoro.
Diesel fuel and thick oil from that vessel contaminated the waters and beaches along the coast of Oriental Mindoro province, devastating the fishing and tourism industries.
The oil dispersed over hundreds of kilometres of waters famed for having some of the most diverse marine life in the world.
In 2006, a tanker sank off the central island of Guimaras spilling tens of thousands of gallons of oil that destroyed a marine reserve, ruined local fishing grounds and covered stretches of coastline in black sludge.
