China has criticised Japan's decision to allow test drilling for gas and oil in a disputed area of the East China Sea as a "provocation".
Both countries have claims over East China Sea deposits
The Japanese government has said drilling rights are an industrial issue and have no political connotation.
The row comes at a time of rising tension between the two nations
Violent protests took place in China at the weekend against Japan's approval of history textbooks, which critics say play down its wartime brutality.
Japanese Foreign Minister Nobutaka Machimura is travelling to Beijing on Saturday to try to heal the rift.
The latest dispute concerns a stretch of water which China and Japan claim as their exclusive economic zone (EEZ).
Japanese companies have been waiting for 40 years to be given the go-ahead to drill in the area, which has a potentially vast reserve of natural gas and oil.
China and Japan increasingly competing for natural resources
Have never agreed a maritime border
Also dispute ownership of Senkaku/Diaoyu islands
Japan's Ministry of Economy, Trade and Industry said it would "press forward" with applications to explore the zone.
The announcement elicited a strong reaction from China.
"Japan has come up with a provocation to China's right and the norm of international relations," foreign ministry spokesman Qin Gang was quoted by Xinhua news agency as saying.
He said China "will retain the right to make further reaction".
Japan's decision comes just one day after Beijing warned Tokyo against precisely such a move.
China and Japan are heavily dependent on imported energy, and both are seeking new sources of energy to power their economies.
School book row
Even before Wednesday's announcement, ties between the two nations were already strained, after Japan approved a series of school textbooks which critics say gloss over its wartime atrocities.
On Saturday a 10,000-strong gathering marched in Beijing to voice their anger at the textbooks - the city's biggest protest since 1999.
The protests then spread to other parts of China on Sunday.
Correspondents said the scale and ferocity of the unrest were unusual for China, and indicated tacit official support for the protesters.