China is extending its military advantage over Taiwan and increasingly looking beyond, building up a force with the power to strike in Asia as far afield as the US territory of Guam, the Pentagon said.

In an annual report to Congress, the US Defense Department said that China was ramping up investment in an array of areas including nuclear weapons, long-range missiles, submarines, aircraft carriers and cyber warfare.

"The balance of cross-Strait military forces continues to shift in the mainland's favor," the report said.

The Pentagon said China's military build-up on the Taiwan Strait has "continued unabated" despite improving political and commercial relations since the island elected Beijing-friendly President Ma Ying-jeou in 2008.

The report -- which US officials delayed for five months amid strains with China -- covered 2009, before the United States approved a 6.4 billion-dollar arms package for the island in January.

Taiwan has said it is "closely monitoring" China's mounting defences following news of the US report.

"China has not given up the use of force against Taiwan, and we are closely monitoring China's military developments. We ask the public to be rest assured," Taiwan defence ministry spokesman Yu Sy-tue told AFP.

China considers Taiwan, where the mainland's defeated nationalists fled in 1949, to be territory awaiting reunification, by force if necessary.

However, ties have improved markedly since Taiwan's President Ma Ying-jeou took office in 2008 on a Beijing-friendly platform.

Ma has said that the island will not engage in an arms race with China, despite the threat it poses.

The US military report said China was "already looking at contingencies beyond Taiwan," including through a longstanding project to build a far-reaching missile that could potentially strike US carriers deep in the Pacific.

"Current trends in China's military capabilities are a major factor in changing East Asian military balances and could provide China with a force capable of conducting a range of military operations in Asia well beyond Taiwan," it said.

China's military doctrine has traditionally emphasized the ability to strike within an area extending to Japan's Okinawa island chain and throughout the South China Sea east of Vietnam, the report said.

But Chinese strategists are now looking to expand their reach further to be able to hit targets as far away as Guam, including much of mainland Japan and the Philippines, it said.

China is working on the longer-range precision missile, but probably needs more work on the technical infrastructure to put the weapon into use, an official who helped draft the report said on condition of anonymity.

Japan and Vietnam, which both have historic tensions with China, have reported rising incidents with China's military in recent months.

The report predicted that China may step up patrols in the South China Sea. US Secretary of State Hillary Clinton last month in Vietnam backed open access to the sea, triggering a rebuke by Beijing.

The Pentagon report credited China with becoming slightly more open but reiterated concerns about an overall lack of transparency.

In March this year, China said it was raising its defense budget by 7.5 percent to 532.1 billion yuan -- 77.9 billion dollars at the exchange rate at the time -- breaking a string of double-digit increases.

The Pentagon study was cautious on suggestions that China's military was partaking in national belt-tightening, saying that the spending growth may be lower simply because the forces were at the end of a five-year program.

The Pentagon paper estimated that China's overall military-related spending was more than 150 billion dollars in 2009 when including areas that do not figure in the publicly released budget.

It is still far below the US defense budget, the world's largest, which is more than 700 billion dollars in the fiscal year beginning in October.

President Barack Obama's administration has sought to broaden cooperation with China, which in the last quarter surpassed Japan to be the world's second largest economy after the United States.

But the administration approved the package to Taiwan that included helicopters, missile defenses and mine-sweepers, leading China to break off military exchanges with the United States.

The Pentagon said it wanted dialogue with China to avoid any "miscalculation" between the two militaries.

"We stand prepared to work with the Chinese if they are prepared to work with us," the anonymous official said. "But it only does us so much good to show up to a meeting if we're the only ones that are there."

The Taiwan arms sale did not include F-16 fighter-jets, which the island and many US analysts say are crucial to narrowing the strategic gap with Beijing.