"The US Defense Department's report, which exaggerates China's military strength and expenditure and continues to spread the 'China threat theory', is based on 'Cold War mentality' and ulterior motives," said foreign ministry spokesman Liu Jianchao.

"This seriously violates principles governing international relations and rudely interferes in China's internal affairs.

"The Chinese side expresses strong dissatisfaction and firm opposition to this," Liu added, in a statement posted on the ministry's website late Wednesday.

The Pentagon said Tuesday in its annual report on China's military power that the pace and scope of Beijing's military modernization gave it the greatest potential of any nation to compete militarily with the United States.

It has already altered military balances in the Asia-Pacific and could pose a threat to regional armed forces, according to the report.

China's spokesman, however, argued that his country was an important force in promoting regional and world peace.

"China is a peace-loving country which firmly sticks to the path of peaceful development and adopts a national defense policy of a defensive nature," Liu said.

He suggested China's military buildup was aimed at safeguarding its territory, including preventing Taiwan from achieving formal independence.

"As a sovereign nation, it is normal that China develops its national defense in order to protect its national security and safeguard its territorial integrity," Liu said.

Taiwan has been ruled separately since the end of a civil war in 1949. Beijing considers it a part of its territory which must eventually be reunified.

China now has an estimated 710 to 790 short-range missiles opposite Taiwan, and is adding new ones at a rate of about 100 a year, according to the Pentagon report.

Its approach to Taiwan centers on developing ways to prevent the United States from intervening militarily, the report said.

In a press conference Thursday, Liu argued that China needed to increase military spending due to its long borders with other countries and the need to modernize.

"Along with the development and the advancement of technology around the whole globe, all countries in the world take military modernization as an important part of the development of national strength," he said.

The report added China was upgrading its longer-range ballistic missile force, adding missiles which can target the continental United States and most of the rest of the world.

It estimated China's military spending at 70 to 105 billion dollars a year -- two to three times the 35 billion-dollar defense budget announced by China -- and accused Beijing of lack of transparency.

Liu denied those accusations.

"Some people accuse us of lack of transparency. We can't accept that. We've clearly announced to the whole world our military expenditure, which is worked out in accordance with our law," he said Thursday.

China has previously argued its military spending is dwarfed by that of the United States.

The Chinese government meanwhile Thursday announced a plan to step up development of its own high-tech "new-generation" weapons over the next 15 years, reflecting a growing recognition that it must become self-reliant instead of depending on foreign purchases.

While China has a successful space program, it lacks ability to produce high-tech weapons, including engines for advanced fighter aircraft, and relies on Russia for much of its hardware, analysts said.

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