The Panama-flagged Sealloyd Arc sank off Phuket on February 7 while sailing for Chattogram in Bangladesh, Thai authorities said, spilling around 1,700 litres of oil.

The coagulated residue has begun washing up on the island's Ya Nui Beach, as well as a smattering of smaller islands in Phuket province, local lawmaker Chalermpong Saengdee told AFP.

The oil has tainted Koh Hey's Banana Beach -- a popular destination for island-hopping tourists seeking turquoise clear waters -- and is expected to keep spreading, he said.

"It's very worrying because the incident happened two weeks ago, but the situation is not improving and it poses a threat to marine life and coastal reefs," he said.

"We are also concerned it could affect Thailand's tourism and economy."

The ship lies at a depth of about 60 metres (197 feet), making it difficult for divers to contain the leak, Chalermpong said.

Footage on public broadcaster Thai PBS showed locals combing beaches with rakes and buckets to collect globs of the oil.

While the Thai Navy has been using dispersants to treat the spillage, Chalermpong has called for government funding to salvage the wreck.

Thailand suffered 130 oil spills affecting more than 23 provinces between 2017 and 2021, according to the Department of Marine and Coastal Resources.

Environmental organisations warn oil spills cause severe and long-lasting damage to ecosystems -- coating wildlife, contaminating food sources and releasing toxic chemicals.