The reception to mark the 40th anniversary of the normalisation of China-Japan relations "will be held at a proper time", the official Xinhua news agency reported, quoting officials, without giving the reason behind the cancellation of the event, which was to take place on Thursday.
Japan's Kyodo news agency also quoted its sources as saying that China has conveyed to Japan that the anniversary event has been called off.
China and Japan have been involved in a row over the islands since the 1970s, but tensions escalated in August after pro-China activists landed on one of them.
Japanese government subsequently bought three of the islands from their private owners, deepening further the rift between the two countries.
Chinese cities have witnessed anti-Japan protests in recent days over the disputed islands, called Diaoyu by China and Senkaku by Japan.
Protests were held all over China and a number of Japanese businesses had been closed after sporadic attacks. Many Japanese enterprises suspended production as agitated Chinese people staged protests to boycott Japanese goods.
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Japan is the third largest trade partner of China after the EU and US.
Hundreds of Japanese also marched through downtown Tokyo yesterday in protest against China's claim over the disputed islands.