Prime Minister Shinzo Abe's cabinet on Thursday approved Japan's biggest ever annual defence budget, as the country bolsters its military amid territorial rows and concerns over China's expanding naval reach.

The cabinet approved 5.05 trillion yen ($41.8 billion) in defence spending for the next fiscal year starting in April, with the focus on strengthening protection of a string of southern islands, including Okinawa, that stretch from Japan's mainland to waters near Taiwan.

The allocation is part of a record 96.7 trillion yen national budget that will now be sent to parliament for debate and approval early next year.

The defence budget is 1.5 percent higher than the current fiscal year which was the previous record high, and marks the fourth straight annual increase in spending.

The trend reflects the hawkish Abe's attempt to build a military more active and collaborative with the United States, its biggest ally.

"We expect the latest procurement would contribute further to cooperation between Japan and the United States," a defence ministry official told reporters.

Japan is also wary of a possible escalation of tensions with China, where steady hikes in defence spending have raised concerns in Tokyo and Washington.

China's navy, air force and coast guard have increased activity in waters near Japan in recent years as Beijing seeks to more actively project its growing military power in the region and back up its claim in a territorial dispute with Tokyo over a group of uninhabited islands in the East China Sea.

China reiterated on Thursday its frequent call for Japan to heed the lessons of its Word War II aggression in China and other parts of Asia.

"We hope Japan can take history as a mirror and stick to the path of peaceful development," foreign ministry spokesman Hong Lei told a regular briefing when asked about the budget.

In September Abe pushed contentious security bills into law in a move to boost cooperation with the US.

The legislation, which could see Japanese troops fight abroad for the first time since the country's wartime defeat 70 years ago, sparked tens of thousands to protest outside parliament.

But the Japanese defence official said the new budget, which was requested in August, does not yet reflect the recently passed legislation, though added the ministry will study if the new laws will require bigger budgets in future years.

Abe is also pushing to amend Japan's pacifist constitution, though opinion surveys suggest the public is wary of change.

His defence strategy has also provoked unease in China and South Korea, which were victims of Japan's aggressive colonial and military campaigns through the end of World War II.

Japan is particularly wary of China, which is seen by several countries in the region as becoming increasingly aggressive in various sovereignty claims, including the dispute over island ownership with Tokyo.

Among the items on the defence ministry's shopping list are 17 SH-60K naval patrol helicopters, with a combined price tag of 102.6 billion yen.

It also wants three Global Hawk drones, six hi-tech F-35 stealth fighters and four V-22 Osprey -- crossover aircraft that have the manoeuverability of helicopters and the range of planes.

Japan and China have routinely butted heads over the ownership of the Tokyo-controlled Senkaku Islands, which Beijing claims as the Diaoyus.

Beijing is also expanding its military heft and reach, with annual double-digit defence budget increases and its first aircraft carrier entering service.

China's Hong called his country's military policy "defensive in nature" and added its spending is "within a reasonable range."