Endosymbiosis with chemosynthetic Gammaproteobacteria is widely recognized as an adaptive mechanism of siboglinid tubeworms, yet evolution of these endosymbionts and their driving forces remain elusive. Here, we report a finished endosymbiont genome (HMS1) of the cold-seep tubeworm Sclerolinum annulatum. The HMS1 genome is small in size, with abundant prophages and transposable elements but lacking gene sets coding for denitrification, hydrogen oxidization, oxidative phosphorylation, vitamin biosynthesis, cell pH and/or sodium homeostasis, environmental sensing, and motility, indicative of early genome erosion and adaptive evolution toward obligate endosymbiosis. Unexpectedly, a prophage embedded in the HMS1 genome undergoes lytic cycle. Highly expressed ROS scavenger and LexA repressor genes indicate that the tubeworm host likely activates the lysogenic phage into lytic cycle through the SOS response to regulate endosymbiont population and harvest nutrients. Our findings indicate progressive evolution of Sclerolinum endosymbionts toward obligate endosymbiosis and expand the knowledge about phage-symbiont-host interaction in deep-sea tubeworms.