China postponed Sunday a ceremony marking the 40th anniversary of the establishment of diplomatic ties with Japan because of an ongoing territorial dispute, the Xinhua news agency said.

"Due to the current situation, the Chinese side has decided that the reception commemorating the 40th anniversary of the establishment of diplomatic relations will be postponed until an appropriate time," Xinhua quoted an official as saying.

The unnamed official from the Chinese People's Association for Friendship with Foreign Countries was referring to the ongoing row centring on the Tokyo-controlled Senkaku islands in the East China Sea, which are claimed by Beijing under the name Diaoyu.

The ceremony was due to take place on Thursday.

Asia's two largest economies have wrangled about the islands since the 1970s, but the row flared in August after pro-China activists landed on one of them.

Tensions escalated dramatically after the Japanese government subsequently bought three of them from their private owners.

The Chinese friendship association has a close relationship with China's foreign ministry.

Officials at the ministry refused to immediately confirm the postponement when contacted by AFP.

A diplomat in Tokyo who declined to be named confirmed Beijing's decision, telling AFP without elaborating: "China informed the Japanese side" about the postponement.

The escalating row saw hundreds of Japanese rally Saturday against Beijing's handling of the issue, days after anti-Japanese protests saw shops and factories vandalised in China.

Some 800 demonstrators waved national flags as they marched through downtown Tokyo, denouncing Beijing as a "brute state" and "fascist".

Protesters marched through the Roppongi entertainment district, near the Chinese embassy, shouting: "We will never give in to China's military threat!"

Japan's coastguard said late Sunday that all Chinese marine surveillance vessels had for the first time in about a week withdrawn from waters near the islands, according to the Kyodo news agency.

A day earlier, the coastguard had said it was monitoring seven Chinese ships near the chain, down from 14 on Wednesday.

China's foreign ministry spokesman Hong Lei on Friday said many of the ceremonies marking the 40th anniversary of Sino-Japanese diplomatic ties had been affected by the row.

"Many plans have been ruined due to the mistaken actions of the Japanese side (and) many of the planned commemoration events have been impacted," Hong told reporters.

"This is something that we do not hope to see. The responsibility lies entirely with the Japanese side."