UPDATE 5-Noda vows no compromise as Japan, China dig in on islands row
* Noda: History, law support Japan's sovereignty over disputed islands
* China says islands "sacred territory since ancient times"
* Row an issue in China leadership shuffle, Japan elections
By Chris Buckley and Paul Eckert
NEW YORK/BEIJING, Sept 26 (Reuters) - Japan will not compromise on the islands at the heart of a dispute with China as Tokyo already has sovereignty over them, Prime Minister Yoshihiko Noda said on Wednesday after China's foreign minister angrily declared the islets were "sacred territory."
"As for the Senkakus, they are an inherent part of our territory in light of history and also under international law," Noda said of the rocky islets China claims as the Diaoyu Islands in a bitter spat between Asia's two biggest economies.
"There are no territorial issues as such. Therefore, there cannot be any compromise that represents a retreat from this position," he told a news conference in New York after attending the U.N. General Assembly.
Earlier on Wednesday, Chinese state media said China had claimed the uninhabited and remote islands in the East China Sea as its "sacred territory since ancient times" in talks between the two countries' foreign ministers in New York.
Sino-Japanese relations have deteriorated sharply since Japan bought the islands from their private owner, hurting bilateral trade ties and tourism while sparking protests across China.
In hour-long talks on the sidelines of the United Nations on Tuesday night, Japanese Foreign Minister Koichiro Gemba urged China to exercise restraint over the dispute. Japanese diplomats described the meeting as "tense," as Gemba endured a stern lecture from Chinese Foreign Minister Yang Jiechi.
Noda noted that Taiwan also claimed the islands - believed to be located in waters rich in natural gas deposits - which Japan has administered since 1895. He said Tokyo would handle the dispute carefully to protect relations with its neighbors.
"We will make sure that these cases will not affect adversely our bilateral relationship. We shall maintain reason and try to resolve the issues calmly and make sure there is good communication between us," he added.
Japan's Chief Cabinet Secretary Osamu Fujimura told a news conference in Tokyo the two sides had agreed to keep talking.
"There is no magic bullet in foreign diplomacy. We need to hold talks through various channels taking into account of broad perspective," he said.
Noda voiced frustration that he had "repeatedly explained to China our reason for purchasing the islands, but regrettably this has to this day not been accepted by China," and instead led to attacks on Japanese citizens and businesses in China.
"I must say clearly to China that there is no excuse for violence and strongly urge China to protect Japan's citizens and business," Noda said.
Japanese automakers Toyota Motor Corp, Nissan Motor Co Ltd and Suzuki are curtailing production in China as a result of the protests, which have forced the shuttering of dealerships and darkened their sales prospects in the world's top car market.
China's meetings with Japanese diplomats - both at the United Nations and in Beijing - suggest that Beijing does not want the row over the island chain to lead to a rupture in relations, in what has been dubbed the Year of Japan-China Friendship.
However, patrol vessels from Japan and China have been playing a tense game of cat-and-mouse in the waters near the disputed islands, raising concerns that an unintended collision or other incident could escalate into a broader clash.
And the unyielding tone of China's published remarks suggests the dispute is far from over.
"The Japanese move is a gross violation of China's territorial integrity and sovereignty, an outright denial of the outcomes of victory of the world anti-fascist war and a grave challenge to the post-war international order," China's official Xinhua news agency quoted Foreign Minister Yang as saying.
Sino-Japanese ties have long been plagued by China's bitter memories of Japanese military aggression in the 1930s and 40s, as well as its present rivalry over regional resources and influence.
The current row coincides with domestic dynamics that make it hard for either side to retreat. While China undergoes a once-in-a-decade leadership change, Noda's ruling party faces a drubbing in an election expected within months.
The Japanese prime minister is under fire from the main opposition party, which picked former prime minister and security hawk Shinzo Abe as its new leader on Wednesday.
Abe has been most vocal of the candidates in urging Tokyo take a tougher line in territorial disputes with both China and South Korea, but on Wednesday he struck a balanced tone.
"We must show our will to firmly protect our territorial waters and Senkaku amid China's movements," he told a news conference after being elected party chief.
But Abe added: "Even if our national interests clash, we should acknowledge that we need each other and control the situation while thinking things strategically. My stance on this has not changed."
Japan, which says the purchase of the islands was intended to fend off a more provocative bid by the nationalist governor of Tokyo, is trying to keep channels of communication open.
China has postponed a ceremony to mark the 40th anniversary of the resumption of diplomatic ties with Japan, but an official at the Japan-China Economic Association said Toyota Motor Chairman Fujio Cho and Hiromasa Yonekura, chairman of the Japanese business lobby Keidanren, and other representatives of friendship groups, would attend an event on Thursday in Beijing.