The Hsiung Feng cruise missile, developed by the military-run Chungshan Institute of Science and Technology, has a range of 1,000 kilometersmiles) and could be used to attack military bases in southeast China, the China Times said.

"Once deployed, it would mark the first time that Taiwan is able to put 'strategic weapons' into use. Its political and military impact would be far-reaching," the paper said.

The defense ministry declined to comment on the report.

The newspaper said Defense Minister Lee Jye witnessed the test firing of the missile from Chiupeng military base in the southern Pingtung county. The missile flew over 500 kilometers (300 miles) before hitting its target.

The report did not specify when the test took place but speculated that it could have been in March.

The missile is expected to go into pilot production later this year or next year.

Taiwan is striving to build up its missile defense capabilities to counter the military threat from China, which officials say has targeted the island with at least 700 ballistic missiles.

Taiwan's cabinet last month approved a revised arms deal with the United States worth almost 15.5 billion dollars after the previous proposal was rejected by parliament.

The arms package over a 15-year period from 2005, pending final approval by parliament, includes eight conventional submarines, a modified version of the Patriot anti-missile system and a fleet of anti-submarine aircraft.

The massive budget proposal has stirred heated debate on the island as critics said the spending could further provoke China and heighten cross-strait tensions.

China sees Taiwan as part of its territory awaiting reunification since they split at the end of the civil war in 1949, and has repeatedly threatened to invade if the island moves towards formal independence.

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