Chinese ships plied the waters of a disputed island chain Monday, Japan's coastguard said, as a fleet of Taiwanese fishing boats set sail for the area, vowing to stake Taipei's claim.

The flotilla, set to arrive Tuesday, will further complicate an already precarious confrontation between Tokyo and Beijing, in which Japan's prime minister has warned China's behaviour could damage its own economy.

The warning came after China dealt a diplomatic snub to Japan by postponing long-planned events marking the 40th anniversary of ties, as relations between Asia's two biggest economies plumb depths not seen for decades.

Japan's coastguard said Monday that two maritime surveillance ships had spent seven hours in sovereign waters off Uotsurijima, the largest island in the Japanese-administered Senkaku chain, which China claims as the Diaoyus.

Two fisheries patrol boats briefly entered the 12-nautical-mile territorial waters around the island chain, the coastguard said.

The ships are not naval vessels; maritime surveillance comes under the State Oceanic Bureau, which is part of the Ministry of Land and Resources. Their roles include law enforcement in Chinese waters.

Fisheries patrol boats are under the aegis of China's Agriculture Ministry, and are responsible for policing fishing and marine resources.

The coastguard said nine other vessels were in the area, some in contiguous waters, an area under international law that extends up to 12 nautical miles outside a territory.

Osamu Fujimura, Japan's top government spokesman and chief cabinet secretary, said Japan has "protested strongly" through diplomatic channels over the intrusion.

Further roiling already turbulent waters was the expected arrival Tuesday of up to 78 fishing boats, which left Taiwan bound for the islands accompanied by Taiwanese coastguard.

"Diaoyutai has been our traditional fishing ground for centuries. We pledge to use our lives to protect it, or we'd disgrace our ancestors," Chen Chun-sheng, the head of Taiwan's Suao Fishermen's Association said on the weekend.

It was not clear if they would attempt a repeat of the August landing by pro-Beijing activists that ramped up tensions between China and Japan.

The situation deteriorated on September 11, when Tokyo announced it had completed a deal to buy three of the uninhabited rocks from their private owner.

Commentators say the nationalisation was intended to prevent their purchase by the hawkish governor of Tokyo, who said he wanted to develop them.

But Beijing reacted angrily and unleashed a firestorm of protest, which also saw sometimes violent rallies rocking several cities, with Japanese businesses suffering vandalism and arson at the hands of rioters.

On Sunday, Chinese state media announced Beijing was "postponing" celebrations to mark the 40th anniversary of the normalisation of diplomatic ties.

Celebrations have been held every decade and never before been shelved.

The Japanese government on Monday described the cancellation as "regrettable", with a spokesman saying the two sides should not let "an individual event affect ties".

The two countries have wrangled since the 1970s about the islands, which lie on important shipping lanes and are believed to harbour mineral resources.

But the latest dust-up, which comes as China is in the process of a delicate leadership transition and as Japan's political scene has become increasingly unstable, shows no signs of dying down.

On Saturday around 800 Japanese demonstrators waved national flags as they marched through downtown Tokyo, denouncing Beijing as a "brute state" and "fascist" in the first mass-rally in Japan since the dispute began.

Tokyo said Monday it would send its top foreign affairs bureaucrat to China for a two-day visit, as Prime Minister Yoshihiko Noda heads to New York amid hopes senior ministers might meet on the sidelines of the UN General Assembly this week.

In an interview with the Wall Street Journal, Noda warned China's intemperance could damage its economy and its effects may be felt further afield.

He said Japanese companies were now facing a form of economic harassment in China.

"Recent delays in customs and visa issuance are of concern," he said.

"Damaging our ties over such things would be bad for not just the two countries' economies, but for the global economy."

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