The collision happened at 2:30 a.m. local time and involved the USS Fitzgerald, an Arleigh Burke-class destroyer, and a "merchant vessel", according to the US Navy.
Vice Adm. Joseph Aucoin told reporters at a Navy base in Yokosuka, Japan, that a number of bodies have been recovered.
After helping stabilize the USS Fitzgerald, the destroyer USS Dewey joined other American and Japanese vessels and aircraft in the search for the missing sailors.
The crash happened at 2.30am Saturday local time, around 56 miles southwest of the city of Yokosuka, which is home to a U.S. naval base.
The missing sailors could be trapped in a damaged section of the destroyer, a statement from the 7th Fleet suggested.
Japanese media reports have also confirmed that all seven had been found dead.
"This has been a hard day", Vice Adm. Joseph Aucoin, the commander of the Seventh Fleet, said as the badly damaged USS Fitzgerald, an Aegis guided-missile destroyer, limped back into its home port at Yokosuka Naval Base, south of Tokyo, after emergency efforts at sea to control flooding and before the deaths were announced. "He's okay. Thank you all for the prayers", Rita Schrimsher of Athens, Alabama, tweeted after speaking with her 23-year-old grandson, Jackson Schrimsher, via Facetime. In this March 7, 2017, the guided-missile destroyer USS Fitzgerald (DDG 62) launches a missile from the aft missile deck during Multisail 17.
The remains of the sailors are being taken to a local hospital to be identified.
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A 7th Fleet statement said the collision did "significant damage and associated flooding to two berthing spaces, a machinery space, and the radio room". The crew had to fight to keep the ship afloat, he said, and the ship's captain is lucky to have survived. "They are now being transferred to Naval Hospital Yokosuka where they will be identified", the statement read. Ron Flanders, public affairs officer for U.S. Naval Forces Japan.
The Philippine-flagged Crystal is almost four times as large as the Fitzgerald, an Aegis guided-missile destroyer. The vessel is 505 feet long.
It was deployed at the Yokosuka base, from where it was supporting peace and security missions in the Asia-Pacific.
The US Navy was still working to determine the number and extent of injuries Saturday morning, but reported that one sailor was being evacuated via Japanese Coast Guard helicopter.
It was questioning crew members of the ACX Crystal, which is operated by the Japanese shipping company Nippon Yusen K.K., and was treating the incident as a case of possible professional negligence, said Masayuki Obara, a regional coast guard official.
"Our thoughts and deep concerns go out to all those directly affected", NYK said.
It left the central Japanese city of Nagoya on Friday and had been due to arrive in the capital on Saturday.
Photos and television footage showed a huge gash in the hull of the U.S.S. Fitzgerald, which subsequently began taking on water.
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