China said it landed three planes over Fiery Cross Reef in recent days, prompting protests from rival claimants Vietnam and the Philippines, and raising fears it could impose military controls in the area.
"Freedom of navigation and overflight are non-negotiable. They are red lines for us," Hammond told a joint news conference with his Filipino counterpart, Albert del Rosario, in Manila.
Hammond, whose Manila visit followed a trip to China, did not elaborate on what action would be taken if the "red lines" were crossed, other than to say Britain would continue to assert its right to sail in the area.
"If this is not challenged, China will take the position that the ADIZ could be imposed and whether this is done in terms of a de facto basis or whether it is official, this will be deemed as unacceptable to us," Del Rosario said.
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Vietnam, another claimant in the South China Sea, has also condemned the test flights as a violation of its sovereignty.
Chinese foreign ministry spokeswoman Hua Chunying said Saturday after announcing the first test flight that it was "civilian" in nature.
The Philippines has asked a United Nations-backed tribunal to void China's claim over almost the entire South China Sea. It expects a decision this year.
China did not participate in the arbitration hearings at The Hague as it maintained that sea disputes should be resolved bilaterally.
"Win or lose, we will abide by the rule of law and we expect China to do the same," Del Rosario said.
"We recognise the tribunal and we will recognise the decision of the tribunal," Hammond said.
Malaysia, Brunei and Taiwan also have competing claims in the South China Sea, which hosts vital shipping lanes over vast oil and gas reserves.