China says it plans to increase military spending by nearly 18% this year, to 417.8bn yuan ($59bn; £30bn).
The figure was revealed ahead of China's annual parliamentary session, which begins on Wednesday.
Just before the announcement, the US released a report criticising China's military spending, and voicing concern over advances in space and cyberspace.
China rejected the Pentagon report as a "serious distortion of facts" that could harm its relations with the US.
"It breaks international norms... We do not pose a threat to any country. The US should drop its Cold War mentality," the foreign ministry said in a statement.
In the report, Washington claimed that the real Chinese defence budget for 2007 was at least double the stated amount.
And other nations have also expressed concern about China's growing military power, and say Beijing is not open enough about what it is spending its money on.
Most of this year's military increase will be spent on increasing salaries and accommodating higher oil prices, according to Jiang Enzhu, a spokesman for China's National People's Congress, which begins its annual meeting on Wednesday.
Mr Jiang said spending on armaments would rise only moderately.
"China pursues a national defence policy that is defensive in nature," he said.
"China's limited military capability is solely for the purpose of safeguarding independence, sovereignty and territorial integrity, and does not pose a threat to any other country."
He added that China spent less on defence, as a proportion of GDP, than the US, UK, France and Russia.
But the international community remains concerned.
This year's rise in military spending "will mark the 20th consecutive year that the Chinese military budget has increased by double digits," Japan's defence ministry said in a statement.
It called on China to "address the concerns of the international community".
US officials are particularly worried that China's growing military might could be aimed at Taiwan, a self-governing island which Beijing sees as part of its territory.
Beijing has threatened military attack if Taiwan declares independence, and the island's 22 March presidential election will be watched closely by the authorities on the mainland.
The US defence department released its annual report on Chinese military power on Monday evening.
The report said China was developing weapons that would disable its enemies' space technology - such as satellites - in the event of a conflict.
It expressed concern about China's decision to shoot down a defunct weather satellite in a test in January 2007.
It also said that "numerous" cyber intrusions into computer networks around the world, including some owned by the US administration, apparently originated in China.
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David Sedney, a senior China specialist at the Pentagon, told reporters there was no call for US alarm, but he said that Washington was keen for Beijing to be clearer about the reasons behind its expanding military costs.
"I think the biggest thing for people to be concerned about, really, is the fact that we don't have that kind of strategic understanding of the Chinese intentions," he said. "And that leads to uncertainty."
In its report, the Pentagon estimated that China's total military spending in 2007 was between $97bn and $139bn.
Last month, the Bush administration requested $515bn for the next US fiscal year, not including extra spending for the wars in Iraq and Afghanistan.
There has recently been some progress in US-Chinese military relations, including the installation of a joint telephone hotline.