A territorial row between Japan and China has escalated, with the Japanese government accusing the Chinese of starting to extract energy in disputed waters between the two countries.

Japanese Trade Minister Shoichi Nakagawa says China had begun producing either oil or natural gas at the Tianwaitian oil and gas field in the East China Sea.

Mr. Nakagawa says smoke has been seen wafting from a chimney on a Chinese drilling facility.

Foreign Ministry spokesman Akira Chiba told reporters that "usually, where there is smoke, there is a fire." He said Tokyo is concerned the Chinese might be extracting resources from the Japanese side through an undersea pipeline, and that has prompted the Japanese to file a protest with Beijing.

"We have told the China side our regrets that this is being done, because we have asked the Chinese side time and again to, number one, provide us with information about their findings in the area, (and) number two, to stop exploitation," he said.

Japan claims the activity straddles a median line that separates the two countries' 200 nautical mile exclusivity zones. China does not recognize the boundary, and says its exclusive economic zone includes waters farther east, nearly as far as the Okinawan islands, which part of Southern Japan.

The Chinese Foreign Ministry spokesman in Beijing on Tuesday said China has repeatedly made its stance on the issue clear; namely, that the gas field exploration is taking place in areas that are indisputably Chinese coastal waters.

Both China and Japan expressed a desire to resolve the dispute through dialogue.

Both nations rely heavily on imports of energy, and are attempting to secure new sources of oil and natural gas.

Japan two months ago granted test drilling rights to a domestic entity to look for gas in the same disputed waters, after decades of refusing to issue such licenses. That prompted a protest from China.

Earlier this month, Japan said its patrol planes had spotted five Chinese warships near another Chinese exploration installation around the disputed waters.