Beijing warned it would take "defensive emergency measures" against any aircraft failing to identify itself in the islands' airspace. It would "identify, monitor, control and react" to air threats.
"This is a necessary measure taken by China in exercising its self-defence right," spokesman Yang Yujun was quoted as saying. "It is not directed against any specific country or target. It does not affect the freedom of over-flight in the related airspace."
A Japanese Foreign Ministry spokesman said Japan had lodged a protest at China's embassy in Tokyo and reiterated its position that the islands belong to Japan.
"Setting up such airspace unilaterally escalates the situations," the Foreign Ministry said.
Earlier this month, Japan's military staged amphibious landings on some similarly uninhabited islands; 34,000 troops were involved. Patrol ships from both countries have been shadowing each other for months.
Dr John Swenson-Wright, senior consulting fellow at Chatham House and Cambridge University expert on modern Japanese politics and international relations, said yesterday that many experts on the region were becoming increasingly alarmed, particularly because China was building up forces that could "directly challenge Japan's ability to maintain control over the islands".
He estimated the chances of some kind of military conflict were "certainly no higher than 20 per cent".
But he added: "I think we should be worried about it, because we have seen in the last two years a growing, steady increase in the willingness of China to challenge Japan's claim ... China knows it would be outclassed [militarily] by the US and Japan, notwithstanding all the talk about the rise of China as a maritime power.
"Nobody wants a war but that's what they said in 1914."
He said the US would be very worried about the situation and would probably try to build bridges.
In a report in April, the International Crisis Group think-tank warned that the islands had become a highly explosive issue in China, while moderates in Japan's government had been sidelined.
"Tokyo and Beijing urgently need to work towards establishing communication mechanisms and strengthening crisis mitigation in order to avoid a larger conflict," the group commented.
- Independent