The “towfish”, pulled behind a search ship and fitted with survey instruments, plunged to the bottom of the remote southern Indian Ocean on Sunday.
“The towfish collided with a mud volcano which rises 2,200 metres from the sea floor resulting in the vehicle’s tow cable breaking,” the Joint Agency Coordination Centre (JACC) announced.
“The towfish and 4,500 metres of cable became separated from the vessel and are now resting on the sea floor,” the statement added.
Australia is leading the search for the Boeing-777 that vanished on March 8, 2014 en-route from Kuala Lumpur to Beijing with 239 people onboard.
The aircraft is thought to have crashed after diverting from its course but the undersea hunt has so far found no sign of it.
Last July, a two-metre-long wing part known as a flaperon washed up on a beach on the Indian Ocean island of Reunion, giving the first firm evidence that the flight met a tragic end.
Another barnacle-encrusted piece of metal found in Thailand at the weekend has prompted speculation it too could be from MH370 with a specialist team due to examine it, however ocean current modelling suggests it is unlikely to be from the missing plane.
Australian officials said there were no injuries to crew in Sunday’s incident onboard the Fugro Discovery and it was thought that the towfish could be recovered.
The ship was Monday returning to the western Australian port of Fremantle so a replacement cable could be fitted, a journey which is expected to take until Saturday.
“During the journey, the spare towfish on board Fugro Discovery will be readied for future search activities,” the JACC statement said.
The key instruments in the towfish are side scan sonar and multi-beam echo sounders that look for man-made objects on the sea floor.
Earlier this month searchers uncovered a 19th century shipwreck deep underwater, their second wreck find in the nearly two-year long mission.