Foreign ministry spokesman Hong Lei said right-wing forces in Japan had repeatedly made such allegations with the intention of shifting international attention from the "plot" to change Japan's pacifist constitution, the official Xinhua news agency reported.
"We sternly warned these forces not to mislead public opinions with rumours and play up tensions for their own selfish benefit," he said in a press release Saturday quoted by Xinhua.
Japan's Asahi Shimbun daily reported Friday that Chinese air force officials have drafted proposals for a new air defence identification zone (ADIZ) that could place the Paracel Islands -- claimed by both China and Vietnam -- at its core.
The US warned Beijing against such a move, with the State Department saying Saturday that it would be seen "as a provocative and unilateral act that would raise tensions and call into serious question China's commitment to diplomatically managing territorial disputes".
The US stressed that the rumours were "unconfirmed", however.
In response, Hong said China had the right to adopt all measures, including setting up air defence zones, to safeguard national security, according to Xinhua.
Beijing claims the South China Sea almost in its entirety, even areas a long way from its shoreline.
Late last year, it caused a storm when it abruptly declared an ADIZ above the East China Sea, including islands at the heart of a sovereignty row with Tokyo.
Three Chinese ships sailed through the disputed waters in the East China Sea on Sunday as diplomatic tension between Tokyo and Beijing intensifies.
Taiwan, the Philippines, Brunei and Malaysia all have rival claims to parts of the South China Sea, while Washington is also watching Beijing's increased assertiveness.
China has occupied the Paracels since a battle with South Vietnamese forces in 1974. It is a cluster of about 40 islets, sandbanks and reefs.
AFP