Japan's government has awarded a Japanese oil company test drilling rights in a potential flashpoint maritime area also claimed by China.
Japan and China are increasingly competing for resources
Teikoku Oil Co asked for the rights in April, after Tokyo signalled a change in policy to allow test drilling.
China and Japan have held talks about how to share out resources in the East China Sea, but have failed to agree.
China said the Japanese move would harm bilateral ties, already strained by rows over history and resources.
"If Japan persists in granting drilling rights to companies in disputed waters it will cause a serious infringement of China's sovereign right," Chinese foreign ministry spokesman Liu Jianchao told reporters in Beijing.
China has been drilling since 2003 within the area both sides agree are in Chinese waters, but Japan is concerned that it may be drawing gas from the area is considers to be its zone.
Japan has held off drilling while the two sides have been trying to resolve the issue through talks, but these have made no progress.
China and Japan's exclusive economic zones (EEZs) overlap
Japan claims EEZ extends 200 nautical miles from its shore, while China claims EEZ extends to edge of its continental shelf
Two countries have never agreed a maritime border
The UN says it will arbitrate by May 2009
Also dispute ownership of Senkaku/Diaoyu islands
At the last round of talks on the issue, Beijing suggested Japan and China engage in joint exploration of the area, but Tokyo turned down that offer.
Teikoku will not be able to begin drilling immediately.
"There are many issues regarding the water area such as safety so we want to make a decision on when actual work will take place after consulting with the government agencies concerned," the company said in a statement.
Relations between Japan and China have been deteriorating for months.
Mr Liu also complained on Thursday about a controversial history textbook, which China says glosses over Japanese abuses during World War II.
Chinese anger at the textbook, which was adopted by a Japanese school board on Wednesday, led to violent anti-Japanese demonstrations in several cities across China in April.