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COCO CAY, BAHAMAS—In the latest clash between rivals that have long vied for control of highly prized cruise routes, a barrage of cannon fire from Royal Caribbean’s M.S. Allure of the Seas sank a Carnival Cruise Line ship that crossed into disputed waters off the coast of the Bahamas, sources said Thursday.

The Allure, an Oasis-class recreational vessel with a standing crew of around 2,300, opened fire on Carnival’s M.S. Magic after it allegedly ignored repeated warnings not to approach Coco Cay, a private island owned by Royal Caribbean. After sustaining several direct hits, the enemy ship’s hull reportedly ruptured, immediately flooding its bingo hall and spa with seawater, collapsing several theme restaurants, and ultimately killing all 3,675 guests on board.

“By approaching within three nautical miles of Coco Cay, the M.S. Magic was in direct violation of the terms of the 2011 Caribbean Nights cease-fire agreement,” said Captain David Beeman of the Allure, stating that the attack was necessary to safeguard the recreational interests of the customers he is sworn to serve. “Per standard procedure, our limbo emcee first alerted the Magic that it had entered our territorial waters by issuing a verbal warning and blasting conga music over our PA system. When the ship refused to change...