China on Saturday attacked US criticism of its decision to set up a new military garrison in the South China Sea, saying it sent the "wrong signal" and threatened peace in the hotly disputed waters.

Washington on Friday accused Beijing of raising tensions in the region after it announced last week the establishment of the tiny city of Sansha and a garrison on an island in the disputed Paracel chain.

The move has infuriated Vietnam and the Philippines who accuse Beijing of stepping up harassment at sea.

But China's foreign ministry reacted angrily to the US statement, voicing its "strong dissatisfaction and opposition", the official Xinhua news agency reported.

Ministry spokesman Qin Gang said the US remarks sent "a seriously wrong signal, which is not conducive to the efforts safeguarding the peace and stability of the South China Sea and the Asia Pacific region".

The establishment of Sansha was "completely within China's sovereignty", he said.

And he accused the US of "selective blindness" as "certain countries" escalated disputes by opening oil and gas blocks, threatening Chinese fishermen, and illegally appropriating territory.

The Philippines recently offered oil and gas exploration contracts in a disputed area of the South China Sea off the coast of its western island of Palawan.

It also entered into a tense stand-off over the Scarborough Shoal in April when Chinese patrol vessels blocked the Philippine Navy from arresting Chinese fishermen.

Vietnam attracted China's ire in June after it adopted a law that places the Spratly islands, under Hanoi's sovereignty. Both countries claim the islands as their own.

China says it controls much of the sea, but the Philippines, Vietnam, Brunei, Malaysia and Taiwan all claim portions.

US State Department spokesman Patrick Ventrell said in a statement Friday they were "concerned by the increase in tensions in the South China Sea and are monitoring the situation closely".

The establishment of the garrison and Sansha "runs counter to collaborative diplomatic efforts to resolve differences and risk further escalating tensions in the region," he added.

And in a reference to what he said was "confrontational rhetoric" and incidents at sea, he said: "The United States urges all parties to take steps to lower tensions."

Also on Saturday, a commentary on Xinhua attacked the US accusations as "groundless and irresponsible" and urged Washington to "draw back its meddling hand from the South China Sea disputes".

The United States has rallied behind Southeast Asian nations, expanding military ties with the Philippines and Vietnam. In April, the first of 2,500 US Marines touched down in Australia in a further show of US power in Asia.

The US Senate approved a resolution late Thursday that "strongly urges" all regional nations to exercise self-restraint and to refrain from permanently inhabiting points in the South China Sea until a code of conduct is reached.

The resolution, sponsored by senators from both major parties, declared that the United States was committed "to assist the nations of Southeast Asia to remain strong and independent".

During a 2010 visit to Vietnam, Secretary of State Hillary Clinton declared that the United States had a national interest in freedom of navigation in the South China Sea, through which half the world's cargo passes.

The State Department statement on Friday reiterated that the United States has an interest in stability and "unimpeded lawful commerce" in the South China Sea but that Washington does not take a position on rival claims.

Southeast Asian nations faced deep divisions last month during annual talks in Cambodia. That prevented them from issuing the customary joint communique and held up progress on reaching a code of conduct with China.

The code would set rules to reduce the chances of a dispute over fishing, shipping rights or oil and gas exploration tipping into armed conflict.