The spat between Asia's top two economies was sparked by comments by Prime Minister Sanae Takaichi in November that Japan could intervene militarily in any attack on self-ruled Taiwan.

The measures announced on Tuesday cover exports of "dual-use" items -- which can have civilian and military uses -- to 20 Japanese entities, including five subsidiaries of Mitsubishi Heavy Industries as well as Japan's space agency.

The commerce ministry added a further 20 Japanese organizations, including automaker Subaru, to a "watch list" requiring stricter reviews of exported items that could be used for military purposes.

"The above measures are aimed at curbing Japan's 'remilitarization' and nuclear ambitions and are completely legitimate, reasonable and lawful," a commerce ministry statement said.

"Honest and law-abiding Japanese entities have nothing to worry about," it added.

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A Japanese trade ministry official told AFP that Tokyo would "take appropriate measures" after analyzing the impact of the new curbs. The Mainichi Shimbun daily reported that Japan had lodged a protest.

Takaichi's comments on Taiwan, which China views as its territory and has not ruled out taking by force, have enraged Beijing.

The most visible consequence is a sharp drop in Chinese visitors to Japan -- 61 percent in January -- after Beijing warned its citizens against going there.

In December, J-15 jets from China's Liaoning aircraft carrier twice locked radar on Japanese aircraft in international waters near Okinawa, according to Japan.

China has reportedly suspended imports of Japanese seafood. Japan's last two pandas were also returned to China last month.

Last month China announced tightened controls on exports to Japan for items with potential military uses.

This fueled worries that Beijing may choke supplies of vital rare-earth minerals, some of which are included in China's list of "dual-use" goods.

The latest move singles out dozens of Japanese industrial heavyweights including shipbuilding and aerospace firms.

Shares in Kawasaki Heavy Industries sank almost five percent in Tokyo, while Mitsubishi Heavy Industries shed close to four percent and IHI tumbled nearly seven percent.

Several of the firms listed are indeed active in the defense industry, manufacturing kit including ships, fighter jets and missiles for the Japanese military.

Japan has been shedding its strict pacifist stance, moving to obtain "counterstrike" capabilities and to ease rules on exporting lethal defense equipment.

Takaichi's government in December approved a record defense budget worth nine trillion yen ($58 billion) for the coming fiscal year to expand its military capabilities.

Takaichi told parliament on Friday that China was intensifying attempts to change the status quo "by force or coercion" in the East China Sea and the South China Sea.

"Strengthening our defense capabilities is essential to protect the lives and peaceful livelihoods of our citizens as we face the most severe and complex security environment since the end of (World War II)," Takaichi said Monday.

Japanese firms dealing with China were already struggling with delays in getting approvals, said Noriyuki Kawamura, professor emeritus of Japan-China relations at Nagoya University of Foreign Studies.

"With today's announcement, we can expect the process will be made even more stringent. I believe this will be a huge blow to companies involved," Kawamura told AFP.

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