BEIJING (Reuters) — China may convert more navy ships into patrol vessels, state media said, as it seeks to extend its reach over disputed South China Sea islands that straddle key Asian shipping lanes.

The report comes after Chinese boats jostled with a US naval ocean surveillance vessel that Beijing said was conducting an illegal survey in its waters.

"China will make the best use of its (retired) naval ships and may also build more fishery patrol ships, depending on the need," Wu Zhuang, director of the Administration of Fishery and Fishing Harbor Supervision of the South China Sea, told the China Daily.

It did not say if the boats would be armed.

Beijing's military build-up has contributed to a sense of unease in parts of Asia, especially Taiwan, a self-ruled island China claims as its own and which it has vowed to bring under mainland control, by force if necessary.

Control of the South China Sea and access to the Straits of Malacca is crucial to China's plans should war ever break out with Taiwan.

China, in the middle of an ambitious naval modernisation plan, earlier this week sent its largest fishery patrol ship, the Yuzheng 311, to the waters around the Spratly Islands, a cluster of islets and atolls that lie north of Borneo island, an area rich in fishing and with significant oil and gas deposits.

"Faced with a growing amount of illegal fishing and other countries' unfounded territorial claims of islands in China's exclusive economic zone, it has become necessary to step up the fishery administration's patrols to protect China's rights and interests," the China Daily quoted Wu as saying.

The Spratlys are claimed by China, as well as in full or in part by Taiwan, Vietnam, the Philippines, Malaysia and Brunei. Several of them have moved to bolster their own claims recently.

The Philippines signed a law last week laying claim to part of the Spratlys and separate Scarborough Shoal. Malaysia's prime minister on March 5 landed on Swallow Reef and Ardasier Reef, also in the Spratly archipelago, to assert his country's claim.

"The Philippines has passed a law that is very controversial and that is not very smart diplomatically," said a Foreign Ministry official in Taiwan.

Asked about China's claim, the official said: "I am sure they'll express their will in a more aggressive way."

The last time China's navy engaged in battle was in 1996, when three of its ships had a brief shoot-out with a Philippine gun boat in the South China Sea. Two years later, the Philippine navy arrested Chinese fishermen off Scarborough Shoal.

"Vietnam's position on the Paracel and Spratly Islands has been made clear. Vietnam is paying attention to, and will follow the movements of the ship Yuzheng 311 in the East Sea," Foreign Ministry spokesman Le Dung said this week. It was also "very concerned" about a Chinese travel agency plan to launch tours to Phu Lam island, which Dung said was part of "Vietnam's Paracels".

Sending a fishery patrol, rather than an explicitly military vessel, shows China "exercised moderation", Chinese media cited Su Hao, head of China Foreign Affairs University's Asia-Pacific Research Centre, as saying last week.

"There's no cause for alarm. We're not worried. The situation is normal," said Vice Admiral Ferdinand Golez, chief of the Philippine navy.

The shortest route between the Pacific and Indian oceans, the South China Sea has some of the world's busiest shipping lanes.

Over half the globe's oil tanker traffic passes through the sea, which is also said to hold valuable fishing grounds, and as-yet unexploited oil and natural gasfields. The United States assigned an escort to its naval survey vessel Impeccable, which was harassed by five Chinese boats earlier this month in waters that China claims as its exclusive economic zone.

US National Intelligence Director Dennis Blair told Congress last week the Chinese had become assertive in staking claims to international waters around economic zones and were "more military, aggressive, forward-looking than we saw a couple of years before" in Southeast Asia and the South China Sea.

"The US position is that we don't have a dog in this fight, unless any parties start taking positions that cramp the freedom of the high seas," said Ron Huisken, of the Australian National University's Strategic and Defence Studies Centre.

In a sign of its growing clout, China in December sent three naval vessels to help tackle piracy off Somalia, its biggest blue water operation outside the region. It has also become increasingly vocal about plans to acquire an aircraft carrier.

"The Chinese claim (in the South China Sea) is weaker than many others'," Huisken said. "When China went firm on this issue in the 1980s, they must have known it would be a millstone around their necks (diplomatically) but it was important enough to them to go forward."