Beijing is modernising its military to make possible a forcible reunification with Taiwan, which it regards as a renegade province, the report says.

Preparing for a potential conflict in the Taiwan Strait is the primary driver for China's military modernisation

Pentagon report

As well as assessing China's military power, the annual report also focuses on the country's ability to threaten other powers in the Asia-Pacific region.

Correspondents say this is the first time such a report has questioned China's commitment to a peaceful settlement with Taiwan and highlights the threat it poses to other neighbours.

The Pentagon is required to submit to Congress an assessment of China's military every year. But, because of the change in administration, this is the first report since May 2000 - in other words, the first under the Bush administration.

'Credible military options'

The report states that the primary driver for China's military modernisation is "preparing for a potential conflict in the Taiwan Strait".

It adds: "While it professes a preference for resolving the Taiwan issue peacefully, Beijing is also seeking credible military options."

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May 02: China's presumed future leader Hu Jintao visits White House Feb 02: President Bush makes two visits to China, with little progress May 01: Beijing furious as Taiwan's president allowed to visit US Apr 01: US spy plane collides with Chinese fighter jet - leading to intense diplomatic stand-off Jan 01: New President George Bush says unlike Bill Clinton, he does not regard China as a 'strategic partner' Click here for US-China timeline

The report estimates China's total military spending at $65bn a year, more than triple the $20bn figure publicly reported by Beijing.

It adds that this spending could increase three or four-fold by 2020.

The Pentagon is also concerned by China's recent purchase from Russia of two Sovremenny-class destroyers, which are armed with missiles that could sink an American aircraft carrier.

"The ambitious military modernisation casts a cloud over its declared preference for resolving differences with Taiwan through peaceful means," the report says.

Beijing fears Taiwan's permanent separation from the mainland may allow the US to divide and Westernise the island, according to the report.

Mixed signals

Rick Fischer, a China analyst at the Jamestown Foundation in Washington told the BBC: "War on the Taiwan Strait is in nobody's interest, and this is the direction Beijing is headed if it does not back off and concentrate on developing peaceful economic relations with Taiwan."

America's particular concerns are the build-up of short-range ballistic missiles opposite Taiwan.

It is also concerned about China's naval expansion, including modern submarines which could be used to blockade Taiwan, and Russian-built destroyers armed with missiles specifically designed to take on US aircraft-carriers.

President Bush came to office describing China as a strategic competitor, and there was a tense diplomatic stand-off last year when a Chinese fighter collided with a US surveillance plane.

But the BBC's Pentagon correspondent, Nick Childs, says that the signals on US-Chinese relations since have been mixed.

There have been signs of co-operation on the US-led campaign against the al-Qaeda network since 11 September, and a senior US defence official was in China last month to look at ways of improving military ties.

But, our correspondent says, it is clear the Pentagon remains very wary of China's military modernisation plans.