Those killed were on board the Ehime Maru, a training vessel for fisheries students from Ehime, Japan. The submarine's rudder sliced into the ship's hull some 6 miles offshore.
"From critical sadness Ehime and Hawaii united to form a special bond, with a commitment to work towards the beneficial exchanges of goodwill, friendship and understanding," Hawaii Gov. David Ige told more than 100 people gathered for the ceremony.
This year's ceremony carried special significance under Buddhist custom because it marked the start of the 17th year since the deaths — a special time for healing and remembrance.
Buddhist tradition counts the moment of death as the first year of passing.
A Navy investigation found the USS Greenville's captain had rushed through mandatory safety procedures while demonstrating an emergency surfacing drill for the benefit of civilians touring the submarine.
The report said the captain didn't want the submarine to be late returning to Pearl Harbor with the 16 guests.
The Navy uses the Ehime Maru accident as a case study to teach prospective submarine officers what not to do.
It prompted the service to change the way squadron commanders monitor their submarines with the hope that supervision will prevent future collisions.