Philippine President Benigno Aquino on Tuesday announced a $1.8-billion military upgrade to help defend his country's maritime territory against "bullies", amid an ever-worsening dispute with China.

In thinly veiled comments referring to China, Aquino vowed during a speech to mark the navy's 115th anniversary that the armed forces would be given the resources necessary to protect Philippine sovereignty.

"We have a clear message to the world: The Philippines is for Filipinos, and we have the capability to resist bullies entering our backyard," Aquino told naval chiefs.

Aquino detailed a 75-billion-peso ($1.82-billion) military modernisation programme that gives priority to upgrading the navy, which is one of the weakest in Southeast Asia.

He said by 2017 the Philippines would acquire two new frigates, two helicopters capable of anti-submarine warfare, three fast vessels for coastal patrols and eight amphibious assault vehicles.

"We will also improve our communications, intelligence and surveillance systems," he said.

Aquino said the government had already spent 28 billion pesos on military modernisation over the past three years, including on two refurbished Hamilton-class cutters acquired from the US coastguard.

The first, renamed BRP Gregorio del Pilar, entered service as the navy's new flagship in 2011. The second is due to be delivered in August.

The Philippines had also announced this year that it would acquire for its coastguard 10 new patrol boats from Japan.

The increasingly bitter territorial dispute with China is over competing claims to parts of the South China Sea, which is believed to sit above vast amounts of oil and gas. It is home to rich fishing grounds.

China insists it has sovereign rights to most of the South China Sea, including waters approaching the coast of the Philippines and other Southeast Asian countries.

China has in recent years taken what the Philippines and Vietnam say are increasingly aggressive actions to assert its claims.

The Philippines says China has since last year occupied a shoal 230 kilometres (140 miles) from the main Philippine island of Luzon.

The shoal is 1,200 kilometres from China's nearest major landmass.

Even with the extra spending announced by Aquino, the Philippines' military budget will still dwarf China's. China announced in March its defence budget for 2013 would be about $115 billion.