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The Finance Minister, Xiang Huaicheng, told delegates on the second day of the annual session of the National People's Congress the military budget would rise this year by 17.7% to about $17bn.
He said the increase, which is set to continue for the next five years, would go towards higher pay and new equipment.
Western analysts say the move indicates a significant change in Chinese strategic thinking after Nato's intervention in Kosovo, which circumvented the United Nations Security Council, where China has a veto.
Mr Xiang said the extra defence spending was needed to "adapt to drastic changes in the military situation of the world and prepare for defence and combat given the conditions of modern technology, especially high technology."
Taiwan factor
 Prime Minister Zhu On Monday backed purchase of new weapons |
President Chen has in the past been a firm supporter of Taiwanese independence but China has threatened invasion should Taiwan move in that direction.
The US is obliged under the Taiwan Relations Act to make available sufficient arms to allow the island to defend itself.
Shrinking numbers
The ChinesePrime Minister, Zhu Rongji briefly referred to Taiwan on Monday but his remarks sounded conciliatory compared with his blistering rhetoric of a year ago.
He said China would pursue reunification with Taiwan, which Beijing regards as a renegade province, but there was no actual mention of the use of force.
The Chinese military has reduced in size from about 4.2 million personnel to about 2.5 million over the last two decades.
It has also been told by President Jiang Zemin to withdraw from its web of business interests, but observers say the army has retained involvement.
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