CHINA has told Japan it "must abandon any illusion" it has over a territorial dispute, with the two sides holding high-level talks over rival claims to East China Sea islands.

Vice Foreign Minister Zhang Zhijun said China "will absolutely not tolerate any unilateral action taken by the Japanese side that infringes on China's territorial sovereignty", according to a ministry statement.

"The Japanese side must abandon any illusion, face up to its erroneous actions and correct them with credible steps," said the statement, released by China after the talks which were attended by Zhang and the Japanese Vice Foreign Minister Chikao Kawai.

The discussions in Beijing were held after a long-running dispute over the Diaoyu islands -- known as Senkaku in Japan -- flared up, leading to street protests across China.

A number of Japanese companies, including Panasonic and Honda, were forced to temporarily halt production last week, as owners feared for the safety of their staff and property.

China's foreign ministry described Tuesday's talks as "candid" and said the two sides agreed to keep discussing the issue, though cautioned that responsibility for progress rests with Tokyo.

Japan should "meet China halfway so as to bring China-Japan relations back onto the right track of sound and stable growth at an early date", the foreign ministry statement added, saying Tokyo "should recommit itself to the consensus and understanding reached between the leaders of the two countries".

China appeared to be encouraging Japan to return to the situation that has largely governed the decades-long dispute, whereby any provocation leading to an escalation of tension is simply avoided.

Separately, the information office of the State Council -- China's cabinet -- released a white paper on the row, criticising Japan for breaking the unwritten pact between the two countries over the islands.

The paper emphasised what it described as an "important understanding" reached in the early 1970s as the two sides normalised ties.

"The then leaders of the two countries, acting in the larger interest of China-Japan relations, reached important understanding and consensus on 'leaving the issue ... to be resolved later'," the white paper said.

In recent years however, the paper added, Japan's actions, especially its recent nationalisation of the islands, have violated that spirit.

"This severely infringed upon China's sovereignty and ran counter to the understanding and consensus reached between the older generation of leaders of the two countries," it said.

Originally published as China tells Japan to 'abandon illusion'