Fleets of Chinese dredges have completed reclamation work in the Spratly Islands of the South China Sea.

China has won the first round of its contest for control in the South China Sea by completing construction of an archipelago of artificial islands, say senior Australian sources.

And there is little that will stop China from winning the next round, too, as an indecisive US Administration and allies including Australia struggle to follow through on earlier promises to challenge unlawful Chinese claims with "freedom of navigation" exercises, the sources say.

By 2017, military analysts expect China will have equipped its new sand islands with ports, barracks, battlements, artillery, air strips and long-range radar systems that will enable it to project military and paramilitary power into the furthest and most hotly-contested reaches of the South China Sea.

Those facilities would give China the ability to obstruct other claimant countries and potentially disrupt sea lanes that carry more than three-fifths of Australia's merchandise trade, according to military analysts.

An aerial photograph from March shows significant construction underway at Mischief Reef. Photo: DigitalGlobe

"This is a huge strategic victory for China," said one official source.

"They've won Round 1," said another. "It's hard to see how they will be stopped from winning the next round too."

In May, US Defence Secretary Ashton Carter demanded a "lasting halt to land reclamation" and commissioned plans to conduct "fly throughs" and "sail throughs" within 12 nautical miles of the artificial islands.

The tough US commitments were strongly supported by Defence Minister Kevin Andrews and accompanied by high-profile US surveillance flights, including one involving a CNN camera crew and another carrying the Commander of the US Pacific Fleet, Admiral Swift Scott.

Those flights are believed to have taken place outside the 12 nautical mile zone, contrary to some media reports at the time.

And military, defence and other official sources said that the promised "fly-throughs" and "sail-throughs" have not yet taken place, adding that the two surveillance flights took place at a distance greater than was widely reported at the time.

The Subi Reef in Spratly Islands on August 8, 2012. Photo: Supplied.

While the US and its allies have struggled to follow talk with action, fleets of Chinese dredges have completed reclamation work including the foundations for a second 3000-metre airstrip in the area, on Subi Reef, which will be capable of landing the largest aircraft in the People's Liberation Army Air Force.

The reclamation work has largely been completed in time for President Xi Jinping to make a smooth state visit to Washington in about a fortnight's time, with the number of Chinese dredges in use in the Spratly archipelago falling by about 90 per cent in recent weeks, according to sources with access to satellite imagery.

Meanwhile, US and Australian defence planners have run into problems as they struggle with old maps and time-series aerial photographs to work out which of the Chinese structures should be the target of freedom of navigation exercises.

Compounding the confusion, strategists have realised that Western vessels and aircraft may have for decades endorsed Chinese claims that have no basis in international law, out of "politeness", thus raising the risks involved with a sharp shift in behaviour now.

"Working out which claims we recognise and how that should be communicated is not easy," said a source.

A dredger operates at the southern entrance to the Mischief Reef. Photo: CSIS/Asia Maritime Transport Initiative

In any case, strategists concede that freedom of navigation exercises will not necessarily hinder the militarisation of China's new sand islands.

Some strategists believe China will have a largely unfettered run until at least 2017, when the land-locked Chinese client state of Laos cedes the chairmanship of ASEAN and a new US administration settles into place.

Other Australian and US officials, however, say that China has won at the tactical level but lost the bigger strategic game, as nations throughout the region respond by building closer security ties with each other and the US.