China and Vietnam have agreed to settle peacefully a dispute over maritime territory in the South China Sea, the official Xinhua news agency said Wednesday.

Chinese vice foreign minister Zhang Zhijun and his visiting Vietnamese counterpart Ho Xuan Son signed an agreement pledging to settle their disputes over the potentially oil-rich waters through "negotiations and friendly consultations", Xinhua said.

"Both sides should fully respect legal principles, take history and other relevant issues into consideration and accommodate each other's concerns in a constructive manner," Xinhua said, citing the agreement.

The communist neighbours also agreed to set up a hotline to "properly deal with maritime issues" and pledged to promote maritime cooperation in "less sensitive fields" such as environmental protection and scientific research.

China is Vietnam's largest trading partner but they have a long-standing dispute over sovereignty of the Paracel and Spratly island groups, which straddle vital commercial shipping lanes in what Vietnam calls the East Sea.

Chinese President Hu Jintao and Vietnamese Communist Party General Secretary Nguyen Phu Trong on Monday held "candid" talks on the issue in Beijing, where they "spoke positively" about resolving their rival claims, Xinhua said earlier.

Last week in Hanoi, a foreign ministry spokesman said "settling disputes in the East Sea is a long-term, difficult and complicated process requiring efforts and a practical and objective approach by both sides".

The two countries' relations sank to their lowest point in years in May and June when Vietnam said Chinese vessels twice interfered with its oil survey ships inside the country's exclusive economic zone.