China's military budget will increase by 17.8% in 2007, the spokesman for the National People's Congress has said.
China says some of the money will go on increasing wages
Jiang Enzhu said that military spending next year would amount to 350.92bn yuan, an increase of 52.99bn yuan.
The rise was announced the day before Chinese lawmakers were due start their annual parliamentary session.
The US deputy secretary of state, in Beijing, said he sought more dialogue to better understand the intentions behind China's military build-up.
"It is not so much the budget and the increases as much as it is understanding those questions better through dialogue and transparency," John Negroponte said from the Chinese capital.
He said he would like to see discussions intensified "so that we can have a better grasp of exactly what the Chinese have in mind."
Mr Jiang said the money would be used to increase wages for military personnel and to upgrade weapons, but gave no further details.
China says its military budget rose by 14.7% last year to $36.6bn (£18.6bn), but the US and other observers believe the actual figure may be two or three times that amount.
Correspondents say China is seeking to modernise its huge but often poorly-equipped military forces by building or purchasing new ships, missiles and fighter planes.
Taiwanese government officials also expressed their concern at the Chinese announcement.
Beijing regards the island as Chinese territory and has vowed to use force if Taiwan were to declare independence.
Taiwanese officials said that the real size of China's military spending was likely to be several times larger that the officials state figure.
They also said that there are now nearly 1,000 missiles in China pointing towards Taiwan, up from several hundred missiles just six years ago.
US Vice-President Dick Cheney recently said that China's military build-up and its missile test in January, in which an inactive weather satellite was destroyed, were not consistent with its stated goal of peaceful development.
China hit back with a spokesman for the foreign ministry in Beijing accusing the US of acting like a nosy neighbour.
Qin Gang said China's policies were aimed only at defence, rejecting claims of opaque spending policies.
"What's your response if your neighbour keeps peeking into your house through a crack in the door and yelling 'Open the door, let's see what's inside'?" Mr Qin said.
"Will you call the police?"
Mr Qin sought to allay fears over China's military intentions.
"China adheres to peaceful development and advocates a harmonious society of lasting peace and common prosperity," he said.
"That's what has allowed China to win trust, co-operation and friends in the world."