The two sides signed an agreement on defence cooperation in 2006

The exercise is taking place between 20 and 28 December in China's south-western province of Yunnan.

It involves a company - just over 100 officers and men - from each side.

India and China fought a brief but bloody border war in 1962 and observers say the largely symbolic exercise is to boost historically frosty relations.

The BBC's Sanjoy Majumder in Delhi says after years of mistrust both sides are beginning to benefit from increased trade and their governments are coming under increasing pressure from business leaders to improve ties.

'Three evil forces'

"The joint training is aimed at enhancing understanding and mutual trust between Chinese and Indian armies and strengthening their exchanges in the anti-terror areas," a statement issued by the foreign office of the Chinese Ministry of National Defence said.

Indian troops have a long-standing border dispute with China

"It is also aimed at deterring the 'three evil forces' - separatists, extremists and terrorists - and promoting the strategic partnership for peace and prosperity between China and India."

Indian troops taking part have been picked from forces fighting insurgencies in restive north-eastern India and Indian-administered Kashmir, reports said.

Indian forces are carrying their personal weapons, light machine guns and mortars. The armoury - tanks, helicopter gunships and unmanned aerial vehicles - are being provided by the Chinese army.

Analysts say the exercise will bolster ties between the two countries.

"It will definitely help strengthen the mutual trust between the two countries, and the militaries in particular, given that they have an episode of unpleasant history," Sun Shihai, a research fellow at the Chinese Academy of Social Sciences told the BBC.

Swaran Singh, associate professor at the School of International Studies at Delhi's Jawaharlal Nehru University, said: "This reflects the growing mutual trust and understanding between the two sides, including between their military establishments."

'Intrusions'

Ties between the two countries remained tense after the brief war in 1962.

During an Indian high altitude military exercise called Operation Chequerboard in 1987, the two armies nearly went to war again.

In between, both sides patrolled the desolate frontier aggressively and skirmishes were not infrequent.

The situation eased after the two countries signed a treaty for peace and tranquillity in 1993, agreeing to reduce troop levels on the borders.

India and China signed an agreement on defence cooperation in May 2006 during the visit of former Indian Defence Minister Pranab Mukherjee to China.

Since then the two countries have been sending officers to each other's military institutions for training, and military delegations have been visiting each other on a regular basis.

Last year, China agreed to reopen the strategic Nathu La pass to border trade, thereby accepting Sikkim as a part of India.

Around 100 Indian soldiers are taking part

But in the last year China appeared to be uncomfortable with India's growing strategic ties with the US, cemented through a series of joint exercises, including the huge five-nation naval exercise in the Bay of Bengal, this year.

In recent months, Indian forces reported more and more Chinese "intrusions" across the disputed border even as Beijing stepped up its rhetoric over the disputed frontier, reiterating its claims to the north-east Indian state of Arunachal Pradesh.

Analysts say the visit of India's governing Congress party chief Sonia Gandhi to China last month has helped put bilateral relations back on the right track.

For its part, China, a long-term ally of Pakistan, appears no longer to object to India's civilian nuclear deal with the US.

But other sources of suspicion remain, among them China's influence in India's neighbour Burma and India's hosting of the exiled Tibetan spiritual leader, the Dalai Lama.