China and Japan have held several rounds of talks over the dispute
Japan and China have struck a deal for the joint development of a gas field in the East China Sea, resolving a protracted bilateral dispute.
Japanese private sector firms will take part in China's project to develop the Chunxiao gas field, which is known as Shirakaba in Japan.
A small crowd of Chinese protesters denounced the deal outside the Japanese embassy in Beijing.
China said the deal would "benefit peace and stability".
Wary of the potential for nationalist backlash, China's foreign ministry spokeswoman Jiang Yu said that the agreement "did not harm the respective legal stance of both sides".
China started drilling in Chunxiao in 2003, inflaming tensions with Japan, which expressed fears that Beijing could siphon gas from what it considered its own side.
China contends that the gas field falls easily within its maritime zone, but Japan contests this.
In 2004, a Chinese nuclear submarine intruded into Japanese waters near the gas fields.
But ties have improved more recently and in May, Chinese President Hu Jintao visited Tokyo for talks with his Japanese counterpart, Yasuo Fukuda.
The agreement could herald further co-operation between Asia's two largest economies, which have been competing around the world for energy resources. Both rely on imports for the bulk of their energy needs.
Known reserves in the disputed fields are estimated at a modest 92 million barrels of oil equivalent - around three weeks of energy demand in Japan - but the two energy-hungry countries believe more could be found.
There are three other gas fields still in dispute and Japanese media said the two sides had also agreed to co-operate on a second area.