The vast land reclamation project on the Fiery Cross Reef in the Spratly Islands is one of several pursued by China but the first that could accommodate an airstrip, Lieutenant Colonel Jeffrey Poole said.
"It appears that's what they're working toward," Poole told AFP.
There is also a harbour on the east side of the reef that appears large enough for tankers and naval warships, he added.
The results of the dredging are captured in satellite pictures obtained by IHS Jane's that cover a period between August 8 and November 14.
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"The land reclamation at Fiery Cross is the fourth such project undertaken by China in the Spratly Islands in the last 12-18 months and by far the largest in scope," the report said.
Before the latest dredging work, the Chinese navy had used a concrete platform and no artificial island had been created.
Beijing claims nearly all of the resource-rich South China Sea, while Brunei, Malaysia, the Philippines, Taiwan and Vietnam have asserted their own claims by building structures on reefs or occupying islands.
The other Southeast Asian countries already had airfields in the area and China's latest efforts could put it in a stronger position as Beijing pursues its claims.
"Given its massive military advantage over the other claimants in terms of quantity and quality of materiel, this facility appears purpose-built to coerce other claimants into relinquishing their claims and possessions, or at least provide China with a much stronger negotiating position if talks over the dispute were ever held," IHS Jane's wrote.
But Beijing has tended to prefer bilateral talks with its smaller neighbours, which are heavily dependent on Chinese trade.