China has begun building sewage and waste disposal facilities on a disputed South China Sea island, state media said Monday, a move likely to stoke a growing territorial row with its neighbours.

The report in the China Daily came a month after Beijing enraged Vietnam by announcing the establishment of the new "capital" city of Sansha on Yongxing, one of the islands that make up the disputed Paracel chain.

The paper said work had begun on sewage disposal and waste collection facilities for the island's roughly 1,000 residents and a new military garrison that Beijing announced last month, sparking the ire of neighbours and concern in Washington.

Beijing claims most of the South China Sea, which is home to vital shipping lanes and substantial proven and estimated oil and gas deposits.

Taiwan and ASEAN members the Philippines, Vietnam, Brunei and Malaysia all have rival claims on areas of the sea, while the United States is also watching China's increased assertiveness closely.

Sparsely populated Sansha is China's smallest city in terms of population and land size. Most of its residents are fishermen and their families.

The sewage network will help irrigate the greenbelt, the China Daily quoted authorities as saying.

"The city government said the projects aim to strengthen environmental protection and improve living conditions for residents and servicemen stationed on the islands," the China Daily said.

"It will also help the diversity of marine species and promote the fishery industry."

The announcement last month that Sansha would be established led to a formal protest being lodged by Vietnam, which said it violates international law.

The Philippines, which is involved in a dispute over another archipelago, the Spratly Islands, summoned the Chinese ambassador to lodge a complaint against the garrison announcement.