By Matt Siegel

SYDNEY (Reuters) - Japan will join a major U.S.-Australian military exercise for the first time in a sign of growing security links between the three countries as tensions fester over China's island building in the South China Sea.

While only 40 Japanese officers and soldiers will take part in drills involving 30,000 U.S. and Australian troops in early July, experts said the move showed how Washington wanted to foster cooperation among its security allies in Asia.

The Talisman Sabre biennial exercises, to be held in locations around Australia, will encompass maritime operations, amphibious landings, special forces tactics and urban warfare.

"I think the U.S. is trying to get its allies to do more," said Euan Graham, director of the International Security Program at the Lowy Institute in Sydney.

"There is an obvious symmetry between Japan as the upper anchor of the Western Pacific alliance and ... Australia as the southern anchor."

All three nations have said they were concerned about freedom of movement through the seas and air in the disputed South China Sea, where China is creating seven artificial islands in the Spratly archipelago, a vital shipping corridor.

Some security experts say China might impose air and sea restrictions in the Spratlys once it completes construction work that includes at least one military airstrip. China has said it had every right to set up an Air Defence Identification Zone but that current conditions did not warrant one.

China claims most of the South China Sea. The Philippines, Vietnam, Malaysia, Taiwan and Brunei also have overlapping claims.

The Japanese personnel will embed with U.S. forces while 500 New Zealand troops will join Australian contingents, according to the Australian Defence Force website.

Japanese Defense Minister Gen Nakatani rebuffed suggestions the exercises were aimed at China, telling Reuters that Japan simply wanted to improve military cooperation with the United States and Australia.

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"UNPRECEDENTED TRILATERAL COOPERATION"

Security cooperation between Canberra and Tokyo has already flourished under Prime Ministers Tony Abbott and Shinzo Abe, with Japan seen as the frontrunner to win a contract to supply next generation submarines to the Australian navy. U.S. commanders have publicly supported such a tie-up.

U.S. Assistant Secretary of Defense David Shear highlighted Washington's goal of boosting cooperation between its allies in testimony to the U.S. Senate this month.

"To expand the reach of these alliances, we are embarking on unprecedented trilateral cooperation," he said.

"In some cases this cooperation directly benefits our work on maritime security. For example, we're cooperating trilaterally with Japan and Australia to strengthen maritime security in Southeast Asia and explore defense technology cooperation."

Winning the submarine deal would be a big boost for Japan's defense industry and potentially pave the way for the sale of advanced Japanese weapons to countries such as the Philippines and Vietnam, which are at loggerheads with Beijing over the South China Sea, experts have said.

Australia also hopes to sign a deal with Japan this year that would smooth the passage of military personnel into one another's country for joint exercises, the Sydney Morning Herald newspaper reported over the weekend.

Deals such as this would likely become more common as Abbott and Abe push to cement the security ties they have fostered before they leave office, said the Lowy Institute's Graham.

"There will be more of this, and it's important in the next couple of years that the relationship beds in because otherwise ... you could quickly find it isn't a self-sustaining relationship," he said.

(Additional reporting by Nobuhiro Kubo in TOKYO; Editing by Dean Yates)