Hawkish Prime Minister Shinzo Abe said Tuesday Tokyo could mount a military response if foreign submarines enter its territorial waters while underwater, as Japan and China continue to squabble over islands.

Abe's comment came after Japan's Defence Ministry said a submerged vessel was spotted in the contiguous waters -- a 12 nautical mile strip outside territorial waters -- near one of Japan's Okinawa islands, from late Sunday to early Monday.

The government would not confirm media reports it was a Chinese sub.

"These are serious acts. If (submarines) enter our territorial waters while underwater, we would have to implement maritime security action," Abe told parliament Tuesday.

He did not clarify further, but the form of words he used may indicate that the Defence Minister could order action by Japan's Self Defense Forces.

In the incident on Monday, the submarine was tracked close to territorial waters off Kume, although it did not violate any laws.

Under international rules, vessels can pass freely through the outer ring of waters, provided their intent is peaceable. Submarines must surface and display their flag if they navigate into territorial waters.

The submarine incident came as three Chinese government ships spent half a day in waters off the Tokyo-controlled Senkaku islands that Beijing claims as the Diaoyus.

It was the latest episode in a fraught few months which have seen repeated stand-offs between official ships from both sides as they jostle over ownership of the strategically-important and resource-rich islands.

China is believed to be boosting its naval capability in the Pacific and has been criticised by neighbours for what is seen as an increasingly aggressive stance in the region, particularly in its multiple territorial disputes.

-- Dow Jones Newswires contributed to this story. --