The report first appeared in the Chinese newspaper Qingdao Zaobao as part of a series on the Chinese navy's expedition to protect commercial shipping from Somali pirates in the Gulf of Aden.
The report spoke of how Chinese warships on an anti-piracy mission were supposedly stalked by an Indian submarine.
Subsequent investigations revealed that the details of the 'standoff' was actually from a Chinese military drill in 2008 and had no factual basis, the South China Morning Post reported on Monday.
The false report was given prominence by almost the all major Chinese news Web sites.
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