By Tim Kelly and Nobuhiro Kubo

TOKYO (Reuters) - Japan's defense ministry on Thursday sought $160 million in a record budget request to develop swift, longer-range missiles to extend its military punch in East Asia, countering growing Chinese strength and an increasing North Korean threat.

If approved, the proposal for a rise of 2.5 percent in defense spending to 5.26 trillion yen ($48 billion) for the year starting April 1 would be the sixth straight annual increase as Prime Minister Shinzo Abe bolsters the military.

The funds will pay for ballistic missile defense upgrades, six F-35 stealth fighters, four V-22 Osprey tilt rotor troop carriers, besides orders for new naval vessels, including a submarine and two compact warships.

Around $90 million of the requested missile development funds of $160 million will go on studying hypersonic missiles to quickly penetrate enemy defenses.

The rest will pay for research on extending missile range, technology that could potentially be used to help develop strike weapons.

South Korea's air force conducted an exercise with two U.S. nuclear-capable bombers above the Korean peninsula on Thursday, two days after a North Korean missile fired over Japan sharply raised tension.

"The research and development is for island defense," a Ministry of Defence official told a briefing, referring to the southwestern Okinawa island chain skirting the East China Sea, where Japan is embroiled in a territorial dispute with China.

The funding for missile development, though relatively small, could nonetheless spark controversy, since Japan's war-renouncing constitution imposes restrictions on strike weapons for the military.

Chinese Foreign Ministry spokeswoman Hua Chunying said Japan had consistently hyped the so-called "China threat" to increase its defense spending, and urged it to learn the lessons of history and pay heed to its neighbors' security concerns.

"Regardless of what its reasons are, Japan's defense spending is increasing every year and has reached a new historical high. We express concern about this," Hua told a regular press briefing.

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Some lawmakers of the ruling Liberal Democratic Party (LDP) argue that Japan needs weapons able to strike North Korean missile sites, so as to deter attacks by Pyongyang.

The longest range missiles in Japan's arsenal, which includes anti-aircraft and anti-ship munitions, have ranges of less than 300 kilometers.

A group of LDP lawmakers that recommended Japan acquire strike weapons was led by Minister of Defence Itsunori Onodera before he took up his post in August.

But such a proposed shift in military strategy would face stiff political opposition from critics in Japan who say Abe's hawkish policies have gone too far, hurting his already soggy popularity.

"Striking enemy bases after an attack to stop subsequent launches would seem like a natural thing to do, but that would be difficult for people in Japan to accept under the current constitution," an LDP lawmaker said, asking not to be identified because he was not authorized to talk to the media.

The proposed defense budget will face scrutiny by Ministry of Finance officials who may seek to rein in military outlays as they juggle demands for higher spending on health and welfare for Japan's aging population.

(Reporting by Tim Kelly, Nobuhiro Kubo and Linda Sieg; Additional reporting by Michael Martina in Beijing; Editing by Clarence Fernandez and Nick Macfie)