The Dyfed Powys Police are working with HM Coastguard and RNLI in dealing with the incident involving a fishing vessel near St. David's Head, Pembrokeshire.
Family members of the crew have been made aware and are being supported by officers.
Jim Phillips from the RNLI in St Davids said a member of the public on the coastal path saw the boat smashed on a rock with two people - thought to be local fishermen - in the water at around 14:40 BST near Abereiddi.
The St David's Lifeboat Station told ITV News that two crew members were believed "missing".
A lifeboat station member said there were two crew members believed to have been onboard the Welsh fishing vessel before it sank.
The Coastguard and Maritime Agency says a search and rescue is underway after a fishing boat sank at St David’s Head, Pembrokeshire.
The UK Coastguard received a 999 call from a member of the public just before 2.30pm today to say they could see a fishing vessel in difficulty near the rocks at St David’s Head just before it sank.
It is unknown how many crew were on board when the ship went down.
The Coastguard search and rescue helicopter at St Athan, and the Coastguard Rescue Teams from St David's Head and Fishguard are all searching the area.
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A body has been found at the bottom of the cliffs of Dale Point, Pembrokeshire following the search for a missing teenager.
The Coast Guard and Police have confirmed that the body was found in the early hours of this morning. They were searching the area in an attempt to locate a missing young man who had been visiting the locale.
No formal identification had taken place but family members have been made aware by Dyfed Powys Police.
Police are appealing for information from anyone who might have been in the area at the time to call 101.
Little Haven in Pembrokeshire has been declared Wales's first smoke-free beach.
The voluntary ban - which also applies to e-cigarettes - comes into effect today, National No Smoking Day, and is for a trial period of 12 months.
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