"Smoke diffused into the passenger cabin and relevant air conditioning components were wrongly shut off, without notifying the captain, which resulted in insufficient oxygen".
Instead, the wingman accidentally triggered a drop in oxygen levels, prompting an altitude warning that caused the almost fatal plunge - from 32,800 to 13,100 feet in less than nine minutes, Civil Aviation Administration of China officials told the station.
Chinese airlines have a good safety record, but passengers have accused pilots of smoking during flights, although few such incidents have been confirmed.
It then ascended and continued the flight at a peak altitude of 26,600 feet rather than heading to a nearby airport to land.
The crew realised the problem after the descent and restored the air conditioning, allowing cabin pressure to return to normal, he said.
"China News" said the co-pilot had shut off the air conditioning units.
The CAAC said it was continuing the investigation and was analysing the aircraft's flight data recorder and cockpit voice recorder.
Qiao Yibin, the CAAC official, promised to hand down "severe punishment in accordance with laws and regulations", if the regulator's final conclusion on the incident matches its initial finding. The national carrier said that, if the allegations about its crew smoking were true, it would deal with them with "zero tolerance".
According to a preliminary investigation by China's aviation authority, a co-pilot on the flight caused it by trying to cover up the fact that he was smoking an electronic cigarette.
An Air China staff member has been accused of putting a flight in danger after taking a puff of his vape while flying the aircraft.