The Philippines and Vietnam will sign a "strategic partnership" agreement by the end of the year, officials have said, as common neighbour and rival China flexes its military muscle in disputed waters.

Both governments said the agreement would bolster defence, political and economic ties between the two Southeast Asian nations most critical of China's claims over most of the South China Sea.

"As strategic partners, we aim to deliver results... a cooperation at the highest possible level," Philippine Foreign Secretary Albert del Rosario told reporters late Wednesday.

"We will deepen our cooperation in order to solve all the issues concerning the South China Sea in a most peaceful way in accordance with international law," Vietnamese Ambassador to the Philippines Truong Trieu Duong told reporters.

The deal would make Vietnam the Philippines' second "strategic partner" after Japan, with which the Philippines is also bolstering military ties.

Maiden naval drills with Japan were held in quick succession this year and negotiations are underway to transfer Japanese defence equipment, including anti-submarine reconnaissance aircraft and radar technology, to the Philippines.

The Philippines is also bound by a mutual defence treaty with its oldest and most important ally, the United States.

The planned Vietnam deal was announced hours before China paraded large numbers of soldiers, tanks and missiles on Tiananmen Square in Beijing to mark the 70th anniversary of Japan's defeat in World War II.

Del Rosario said the Vietnam deal could be signed on the sidelines of the Asia Pacific Economic Cooperation leaders' summit in Manila in November.

Negotiations for the strategic partnership agreement started after Vietnamese Prime Minister Prime Minister Nguyen Tan Dung's visit to Manila last year.

The Philippines, Vietnam and China have overlapping claims in the South China Sea -- an important waterway for global trade which is also believed to hold vast oil and gas reserves.

Brunei, Malaysia and Taiwan also have conflicting claims over some or all of these waters.

China recently reinforced its claim by building artificial islands on disputed shoals, raising fears of militarisation in the region.

A United Nations-backed arbitration body is hearing the Philippines' petition to declare China's sea claims as illegal.