Japanese P-3C patrol aircraft spotted the Dongdiao-class intelligence vessel sailing in territorial waters to the west of Kuchinoerabu Island at around 3:30 AM (1830 GMT Tuesday), Deputy Chief Cabinet Secretary Hiroshige Seko told reporters.
The ship travelled on a southeasterly bearing and left Japan's territorial waters south of the prefecture's Yakushima Island around 5 AM, Kyodo news agency quoted Seko as saying.
It was for the first time that a Chinese spy ship was detected in Japanese water since a submarine was spotted in 2004. The latest intrusion came less than a week after another Chinese naval vessel sailed near islands at the centre of a Tokyo-Beijing sovereignty dispute in the East China Sea.
A senior Foreign Ministry official lodged a protest with the Chinese Embassy here over its military activities in view of latest intrusion.
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"We are concerned about the Chinese military's recent activities," Foreign Minister Fumio Kishida told reporters.
Japanese officials said they are analysing China's possible motives behind the two actions.
"The government will continue to exert every effort in warning and surveillance activities in the waters and airspace surrounding the country," Seko said.
In Beijing, Chinese officials defended the naval vessel's entry into the waters, saying the passage was in line with the principle of freedom of navigation and international rules.
Under international law, ships of all countries, including military ones, are entitled to the right of "innocent passage" through territorial waters as long as it would not undermine others' security.
"There is no need to provide notification or to get authorisation in advance," Chinese foreign ministry spokesman Lu Kang said in Beijing.