An artificial island at Scarborough Shoal could be a game changer in China's quest to control the sea and raises the risk of armed confrontation with the United States, according to security analysts.
Beijing this week insisted it had not started building at the shoal - a move that could lead to a military outpost just 230 kilometres from the main Philippine island, where US forces are stationed.
"We have reason to believe that their presence is a precursor to building activities on the shoal," defence department spokesman Arsenio Andolong told AFP.
"We are continuing our surveillance and monitoring of their presence and activities, which are disturbing."
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China claims nearly all of the sea, through which USD 5 trillion in shipping trade passes annually, even waters approaching the coasts of the Philippines and other Southeast Asian nations.
The competing territorial claims have long been a major source of tension in the region, with China using deadly force twice to seize control of islands from Vietnam.
The United States has reacted to that build-up by sailing warships close to the new islands, and sending warplanes over them, deeply angering China.
A UN-backed tribunal ruled in July that China's claims to most of the sea had no legal basis and its construction of artificial islands in the disputed waters was illegal.
But Beijing vowed to ignore the ruling.
China took control of Scarborough shoal in 2012 after a standoff with the Philippine Navy, and has since deployed large fishing fleets while blocking Filipino fishermen.
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