Up to 350 troops each could be stationed on three islands in the far southwest, close to the Senkakus, which Beijing claims as its own under the name Diaoyus, the mass-selling Yomiuri Shimbun reported.
With the exception of the main Okinawa island, Japan's Ground Self-Defence Forces -- its army -- have no bases on the chain of islands that runs from the bottom of Kyushu to Taiwan. There are limited air force facilities in the area.
Chinese ships have repeatedly moved into the Senkakus' territorial waters, since Tokyo nationalised some of them in September 2012, to confront Japanese vessels.
The islands lie around 2,000 kilometres southwest of Tokyo and around 200 kilometres from the north of Taiwan.
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While most of the bickering has been between coastguards from both sides, observers say military ships are loitering over the horizon, with some warning of the risk of a confrontation.
Beijing has spent heavily on its military in recent years in a bid to develop a "blue water" navy that can project force far out into the Pacific.
Tokyo is now planning to set up new outposts on three islands, including Amamioshima, some 150 kilometres south of the Senkakus, the Yomiuri said, citing unnamed senior defence ministry officials.
Deputy defence minister Ryota Takeda will visit Amamioshima this week to look at establishing a joint research project with the island, it said.
Two other candidate sites for the new posts include Miyako island and Ishigaki island, some 210 kilometres southwest and 170 kilometres south, respectively, of the disputed islets.