Vice-President Xi Jinping on Wednesday said Japan's "purchase" of the Diaoyu Islands was "a farce" and warned Japan to stop any action that infringes on China's sovereignty.
"Japan should rein in its behavior, not utter any words and prevent any acts that undermine China's sovereignty and territorial integrity," Xi said in a meeting with US Defense Secretary Leon Panetta.
The Pentagon chief's first visit to China since taking office coincided with escalating tension between China and Japan over the Diaoyu Islands.
The Japanese government announced its decision to "purchase" the islands last week.
Japan's "purchase" openly challenged the Cairo Declaration and the Potsdam Proclamation and intensified regional territorial disputes, Xi said.
During a series of meetings with State and military leaders, including Xi, Panetta reiterated that the United States does not take positions over, what he termed, territorial disputes concerning the islands and called for all sides to be calm and show restraint to avoid confrontation.
Addressing students at the military's Engineering Academy in Beijing on Wednesday, Panetta also sought to convince Beijing that the US strategic "pivot" to the Asia-Pacific region is not to contain China, amid concerns that Washington's increasing presence encourages its allies, like Tokyo, to engage in provocative behavior.
The US rebalance in the region "is an attempt to engage China and expand its role in the Pacific", he said. "It is about creating a new model in the relationship of two Pacific powers.''
Panetta's remarks represent the latest effort by the US to build stronger military relations with the People's Liberation Army, said AFP, while analysts said the US stance toward China and Japan is often contradictory and its fundamental goal is to maintain a dominating role in international affairs.
Before arriving in Beijing, Panetta started his weeklong Asia trip with a visit to Japan.
While he was there, Tokyo and Washington agreed to install a second missile-defense radar system and the MV-22 Osprey military aircraft was given the go-ahead to begin flight operations in Japan on Wednesday.
Washington says the Diaoyu Islands fall under the US-Japan security treaty and this is a severe interference in Chinese territorial sovereignty, said Liu Jiangyong, a specialist on Japanese studies at Tsinghua University.
But Panetta tried to dismiss concerns during his speech, saying security treaties with allies do not necessarily mean Washington will not criticize their policies.
Tokyo has been urged to shoulder responsibility to peacefully solve the issue through diplomatic means, said Panetta.
He understood, he added, the history and pain left by World War II, but Chinese and Japanese people should work together for regional peace and prosperity instead of living in the past.
The future security and prosperity of the US will be linked to Asia more than any other place in the world, but this is a region threatened by terrorism, nuclear proliferation, piracy and natural disasters, he said. Strong China-US relations are vital for the region, said Panetta.
He called for Washington and Beijing to look beyond disagreements to areas where both share common concern and can work together.
"We cannot let those disagreements and challenges blind us to the great opportunities that exist," he told the military academy. "If we work together and cooperate together, we can solve problems together."
He acknowledged that improving relations and building trust will take time and that, "despite the distance, the distance that we have traveled over the past 40 years, it is clear that this journey is not yet complete, particularly for our two militaries''.
But the Diaoyu Islands, illegally transferred from the US to Japan, is a time bomb to such relations, said Liu Youfa, vice-president of China Institute of International Studies.
"The US wants to use the issue to leverage China-Japan ties and maintain its leadership in the region," he said.
Japan's provocation sparked protests across China. A car carrying US Ambassador Gary Locke on Tuesday was surrounded by about 50 protesters outside the US embassy, which is close to the Japanese embassy.
Foreign Ministry spokesperson Hong Lei on Wednesday said it was an "individual case" that is under investigation.
By Yuan Yue, Sina English
With the escalating tension on islands dispute, it looms large that China-Japan trade war is in the offing, which could be the last thing both sides prefer to see.
One thing is for sure, China is capable of inflicting grave injury on Japan, through trade sanctions, and get away with less harm, due to the remarkable difference between two countries in their bi-directional trade. Speaking bluntly, Japan is much more reliable on China than vise visa.
Generally speaking, China is now trading a smaller share of value with Japan, amongst its total foreign trade. Japan had been China's largest trade partner for all those years from 1993 to 2003, only to be surpassed by the European Union and the United States in 2004, and, not long after, by the ASEAN. Full story
By Mei Jingya, Sina English
Japanese Prime Minister Yoshihiko Noda said Sept. 19 that he plans to send a special envoy to China in order to deescalate the diplomatic tension between the two countries.
Appearing at Japan's TV Asahi Wednesday, Noda said he is considering sending an envoy to Beijing to explain why Japan recently pushed through the purchase of Diaoyu Islands in the East China Sea.
He also said he had expected the occurrence of anti-Japanese rallies in China after Tokyo’s "nationalization" of the islands, but not development of the situation and the fallout thereby arising.
Noda said apart from diplomatic channels, Japan will also seek exchanges with Chinese political and business leaders.