Beijing has urged Myanmar to protect the rights of Chinese companies after the government halted construction of a $3.6 billion China-backed mega dam following public opposition to the project.

China is Myanmar's second-largest trading partner and biggest foreign investor, and Beijing's reaction is a rare public display of discord between the two countries.

Myanmar President Thein Sein on Friday ordered work on the Myitsone Dam on the Irrawaddy River to stop -- a decision hailed by the United States as a sign the military-backed leadership was listening to its people.

But Chinese foreign ministry spokesman Hong Lei on Saturday urged "relevant countries to guarantee the lawful and legitimate rights and interests of Chinese companies".

"The Myitsone power station is a jointly invested project between China and Myanmar" and it has been "rigorously examined by both sides", Hong said in a statement.

Hong called for both sides to "properly handle" the matter through "friendly consultations".

Isolated by nearly half a century of military rule, Myanmar has long relied on its giant northern neighbour for both political and economic support.

Beijing has helped shield Myanmar from international opprobrium and the impact of western sanctions with trade ties, arms sales, and through its position as a veto-wielding permanent member of the UN Security Council.

Energy-hungry China has been pouring money into the isolated state's sizeable natural resources, and the dam in northern Kachin state was backed by energy giant China Power Investment Corp.

The project has attracted opposition from pro-democracy groups and environmentalists testing the limits of freedom under Myanmar's new nominally civilian regime -- in March the junta handed power to a government whose ranks are filled with former generals.

Green groups have warned the dam would inundate an area about the size of Singapore, submerging dozens of villages, displacing at least 10,000 people and irreversibly damaging one of the world's most biodiverse areas.

Friday's announcement marked an unexpected U-turn by the Myanmar regime. Local media had quoted the minister for electric power as saying last month that construction of the dam would go ahead despite public concerns.

For the people of Kachin state, the Myitsone dam has come to symbolise the struggles they have faced for decades as a marginalised ethnic group in the repressed nation.

In April a series of bomb blasts at the site destroyed cars and buildings and left one man wounded.

And in August state media accused ethnic fighters of shooting dead seven people, including civilian workers, at a different Chinese-run dam.

In recent weeks fighting has erupted between ethnic rebels and government troops in the Myitsone Dam area.

Activists have urged China Power Investment to remove workers and equipment from the site and to allow local villagers who were forced to relocate to go home.

The Burma Rivers Network, a network of groups representing dam-affected communities, has also called for six other mega dams planned on the Irrawaddy's tributaries to be scrapped.

Activists warned last month that huge energy projects to transport oil and gas across Myanmar to China were fuelling human rights abuses, including forced labour, violence, evictions and land confiscation.