China has accused Japan of violating its sovereignty as a territorial row simmers with Japanese carmakers cutting their Chinese output.
A spike in long-simmering tensions over disputed islands in the East China Sea also brought a warning from South Korea's president that Asia's security environment was becoming "increasingly unstable".
China said on Wednesday that Foreign Minister Yang Jiechi told his counterpart Koichiro Gemba at the United Nations that Japan was guilty of "severely infringing" its sovereignty by purchasing the disputed islands.
Yang said relations would not improve until Tokyo reversed the action, a statement by the Chinese foreign ministry said in detailing the apparently heated discussions on the sidelines of the UN General Assembly.
"The Chinese side will by no means tolerate any unilateral action by the Japanese side on the Diaoyu Islands," Yang told Gemba, according to the statement.
China and Japan are locked in an escalating confrontation over the Diaoyu Islands – known as Senkaku in Japan – that triggered street protests across China and saw attacks on Japanese businesses.
The two sides have long wrangled over the islands, but relations plummeted to their lowest ebb in years after Tokyo announced on September 11 that it had completed a deal to buy three of the uninhabited outcrops from their private owner.
Commentators said the move was an apparent bid to outmanoeuvre the hawkish governor of Tokyo, who wanted to buy and develop the islands.
Japanese auto giants Toyota and Nissan said on Wednesday they would cut production in China because demand for Japanese cars has been hit by the row.
"Our affiliates in China are adjusting production in consideration of demand," a Toyota spokesperson said. "There is an effect from the current situation between Japan and China on our sales."
A Nissan spokesperson said plants run by its joint venture in China would suspend operations for slightly longer than the country's early-October holiday period.
South Korean President Lee Myung-Bak called for a further military build-up by his country as protection against festering discord in Northeast Asia.
"North Korea is still pursuing the development of nuclear weapons and missiles," Lee told top military commanders at an Armed Forces Day ceremony.
"Political conflicts and military tensions are building up" due to "different perceptions of history and issues surrounding territories and claims to sovereignty", he said.
"As a result, the security environment is in a state of flux and becoming increasingly unstable".
Adding to the rancour, China on Tuesday officially unveiled its first aircraft carrier.
China has become increasingly assertive over its long-time maritime territorial claims as its economic and military power have expanded, causing rising anxiety among its neighbours.
During their talks at the United Nations, a senior Japanese official said Gemba, responding to Yang, called for "maximum careful restraint from the Chinese side because of the recent damage to Japanese businesses and affiliates in China".
"He insisted violence cannot be tolerated," the official said.
Gemba had requested the meeting, the official said, the highest level talks on the issue between the two sides since the Japanese government's island purchase earlier this month.
Yang had told Gemba that Japan must "correct its error".
"Only by doing this can bilateral relations return to a healthy and stable development."
Diplomats at the UN said the pair failed to reach a breakthrough in their talks, but both the Chinese foreign ministry and a Japanese official confirmed that the talks would continue.
"Although the atmosphere was a bit severe, the Chinese side laid out its own case and the ministers agreed to continue the dialogue," a Japanese official said. China's foreign ministry statement also said consultations would continue.
Chinese government ships have sailed into waters around the disputed islands in recent days, but there was no sign of them in the area early on Wednesday, according to Japanese coastguards.
Coastguard vessels from Japan and Taiwan duelled with water cannon on Tuesday after dozens of Taiwanese boats escorted by patrol ships sailed into waters around the Tokyo-controlled islands for several hours.
Taiwan also claims the islands, which lie around 200km from its coast. – AFP