Indian Prime Minister Narendra Modi promised on Tuesday to strengthen Vietnam's military following talks between leaders of the two allies, in a move likely to rankle neighbouring nuclear-armed giant China.

Modi said India would sell naval patrol boats to Vietnam under a $100 million line of credit to the Southeast Asian nation, which is trying to improve its defences in the disputed South China Sea.

Modi held talks in New Delhi with Prime Minister Nguyen Tan Dung, who is on a two-day visit to India, as Hanoi courts powerful allies following soured relations with China over the disputed sea territory.

Modi, who swept to power in May, said the two leaders had agreed to strengthen relations, adding "our defence cooperation with Vietnam is among our most important ones".

"India remains committed to the modernisation of Vietnam's defence and security forces."

The leaders also called for "restraint" and "freedom of navigation" in the South China Sea, where China is embroiled in a bitter dispute with Vietnam and other nations.

"They agreed that freedom of navigation and overflight in the East Sea/South China Sea should not be impeded," said a joint statement after the talks.

"The (leaders called on the) parties concerned to exercise restraint, avoid threat or use of force and resolve disputes through peaceful means in accordance with universally recognised principles of international law."

In May Beijing moved a deep-water oil rig into waters claimed by Hanoi, prompting a months-long high-seas standoff and triggering deadly anti-China riots in Vietnam.

The rig was removed in July.

Modi's comments came after China's top foreign policy official made his second visit to Vietnam in four months Monday in an attempt to repair ties strained to breaking point.

India has long had its own tense ties with China following a brief but bloody border war in 1962.

- Oil and gas exploration -

The defence line of credit was announced last month during a visit by India's president to Vietnam.

Modi and Dung also welcomed the signing earlier Tuesday of an agreement of oil and gas projects between India's state-run oil exploration arm ONGC Videsh Limited and PetroVietnam.

Dung said Vietnam "highly appreciated" India's position on the South China Sea issue as well as its continued cooperation in oil and gas exploration.

At the start of his trip, Dung expressed hope that India would "actively support" a peaceful settlement of the territorial dispute.

Asked Tuesday about India and Vietnam exploring resources together in the South China Sea, a Beijing official said its position was "constant and clear".

"China has indisputable sovereignty over the Nansha Islands (Spratly Islands)," foreign ministry spokesman Hong Lei told a regular briefing in Beijing.

"In the South China Sea, any lawful and justifiable exploration activity is fine by us. But if such activity undermines the sovereignty of China and the interests of China, we are firmly opposed to this."

China has previously criticised India's cooperation with Vietnam in the sector.

China says it has sovereignty over essentially all of the South China Sea, which is believed to hold huge oil and gas deposits.

Vietnam staunchly opposes China's ongoing efforts to develop airstrips and military bases on the island chains it controls in the Sea.