The BBC's James Miles: "The announcement won't come as a surprise to Western military experts"

The news confirms for the first time findings in a controversial US report that Chinese scientists had mastered the ability to make a neutron bomb and miniaturised nuclear warheads.

But in a lengthy rebuttal China denied the report's allegations that it had stolen this technology from the United States over a 20-year period. It also accused the congressional committee behind the report of groundless and vicious slander.

Neutron bombs kill people without destroying buildings. Unlike conventional nuclear weapons, the explosion and heat from a detonated neutron bomb is confined to a relatively small area.

But the detonation also releases a massive wave of radiation capable of penetrating armour or several metres of earth.

Nuclear power

The official news agency, Xinhua, carried a statement from China's State Council which said the country had "no choice" but to continue developing its bombs.

"China had no other choice but to continue to carry out research and development of nuclear weapons technology and improve its nuclear weapons systems, mastering in succession the neutron bomb design technology and the nuclear weapon miniaturisation technology," the State Council said.

China's announcement was accompanied by a detailed account of how it developed its nuclear capability.

The BBC's James Miles in Beijing says it is significant that the Chinese Government wants to be seen as a nuclear power capable of keeping up with the latest technology without resorting to espionage.

Beijing's decision to release the information comes at a sensitive time in the region, with China currently engaged in an escalating war of words with Taiwan over the island's efforts to gain recognition as an independent state, according to our correspondent.

'Nonsense'

Beijing dismissed the spying allegations contained in the US report - the culmination of 11 months of investigations by a panel led by Republican Congressman Christopher Cox.

It accused the US of racial discrimination and described the report's findings as sheer nonsense.

US Government officials challenged some of the report's findings at the time. Energy Secretary Bill Richardson denied that Chinese nuclear technology was on a par with US standards.