CORRECTED-UPDATE 3-Japan says faces increasing threats from China, N.Korea
(Corrects name of Chinese spokeswoman in paragraph 14)
* China's 'dangerous' actions could cause contingency -white paper
* North Korea missile technologies advancing -white paper
* Japan eyes beefing up defence posture
* Osprey aircraft attractive hardware - Japanese general
TOKYO, July 9 (Reuters) - Japan faces increasingly serious threats to its security from an assertive China and an unpredictable North Korea, the defence ministry said in its first annual report since hawkish Prime Minister Shinzo Abe took office.
The report was harshly critical of China's actions in waters near East China Sea islets claimed by both countries, and prompted a sharp response from Beijing, where a foreign ministry spokeswoman said Japan was exaggerating the threat to "artificially create regional tension and confrontation."
Sino-Japanese relations have been strained by the territorial row as well as remarks from Abe suggesting he wants to cast Tokyo's wartime history in a less apologetic tone.
"There are various issues and destabilising factors in the security environment surrounding Japan, some of which are becoming increasingly tangible, acute and serious," said the defence white paper, issued as ruling party politicians call for the Japanese military to beef up its ability to respond.
The general commanding a Japanese airborne brigade whose paratroopers would be among the first troops to respond to an attack on a far-flung island, told Reuters his unit could benefit from better intelligence gathering tools, including drones.
"For any island operation, intelligence is crucial," Tadao Maeda, commanding general of the 1st Airborne Brigade, said in an interview. At present, his unit relies on intelligence from ground or maritime forces. Japan has allocated funds in this year's budget to look into possible acquisition of drones.
The defence ministry report said: "China has attempted to change the status quo by force based on its own assertion, which is incompatible with the existing order of international law," echoing recent comments by Abe and his cabinet.
"China should accept and stick to the international norms."
The row over rival claims to tiny East China Sea islets flared up last September after Japan nationalised the isles, known as the Senkaku in Japan and the Diaoyu in China.
Patrol ships from both countries routinely shadow each other near the islands, raising concerns that an unintended collision or other incident could lead to a broader clash.
"Some of China's activities involve its intrusion into Japan's territorial waters, its violation of Japan's territorial airspace and even dangerous actions that could cause a contingency, and are extremely regrettable," the paper said.
Japan said in February that a Chinese naval vessel had locked its fire control radar on a Japanese destroyer, a step that can be considered a step away from actual firing.
China denied the warship had locked its radar on the Japanese vessel. But the white paper said Beijing's assertion was "inconsistent with the facts".
Commenting on the defence report, Chinese Foreign Ministry spokeswoman Hua Chunying said it contained "false criticisms" and followed growing calls in Japan to strengthen the military.
"The international community cannot but be concerned by Japan's real intentions and its future development," she said. "We hope that Japan can correct its attitude."
Abe returned to power for a rare second term after his ruling bloc won a general election late last year, promising to revive the economy and strengthen Japan's defences. He also wants to revise the post-World War Two pacifist constitution to legitimise the military, although winning support for contentious revisions is likely to take time.
Japan is already bolstering defence of the disputed islands and this year raised its defence budget for the first time in 11 years.
The military is conducting joint drills with the United States, its main security ally, and fortifying defences against missile attacks, while the government is reviewing its mid-term defence policy.
Japan plans to draw up a new defence plan by December, and Abe's Liberal Democratic Party (LDP) submitted recommendations to the government last month that included looking into acquiring the capability to attack enemy targets.
Japan has long maintained that it has the right to strike enemy targets when an intention to attack Japan is clear, the threat is imminent and there are no other options.
But any sign that Japan is moving to obtain such capabilities could upset China and South Korea, where resentment against Japan's wartime aggression and colonisation runs deep.
"The balance of power will be lost if we don't start considering striking back when attacked," said Osaka University professor Kazuya Sakamoto, who sits on a panel advising Abe on security policies.
The LDP has also recommended that the military should set up an amphibious Marines division equipped with tilt-rotor aircraft like the V-22 Osprey to boost the defence of remote islands.
Maeda backed the proposal to acquire the U.S. aircraft, whose deployment to Japan's Okinawa island has prompted local opposition because of concerns about its safety.
"For the airborne, the Osprey is a very attractive piece of hardware," he told Reuters. Japan has set aside about $80,000 in this year's defence budget to research the possible acquisition.
Abe, whose LDP is expected to cement its grip on power in this month's upper house election, also wants to revise an interpretation of the constitution that bans using the right of collective self-defence, or aiding an ally under attack.
A panel set up during Abe's first 2006-7 term recommended that the ban be lifted in certain cases, such as intercepting ballistic missiles bound for the United States. A new committee of advisers is expected to reach similar conclusions.
North Korea launched a missile in December, stepping up the threat that the isolated, impoverished state poses to rivals. In February, it conducted a third nuclear test, which moved Pyongyang closer to developing long-range nuclear missiles.
"The launch of a missile ... showed that North Korea has advanced its technologies to extend the range and improve the accuracy of ballistic missiles," the white paper said. (Additional reporting by Ben Blanchard in BEIJING; Editing by Linda Sieg and Raju Gopalakrishnan)
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