President Benigno Aquino Tuesday thanked China for its help to finish a major Philippine water project, amid frayed relations between the two countries over disputed territory in the South China Sea.

Aquino said the situation showed how countries could help each other even as his spokesman stressed the Philippines was firm on its claim to disputed territories like the Scarborough Shoal.

"We are thankful for the funds provided by China so we could set up this important project. It is through firm relations with our neighbouring countries that we can speedily solve our problems," Aquino said in a speech.

China backed the 5.2 billion-peso ($123-million) project, to improve water delivery to 21 million residents of Manila and surrounding provinces, through the preferential buyer's credit of China's Export-Import Bank.

Aquino said the project had been finished ahead of schedule thanks to the main contractor, the China International Water and Electric Company.

He did not mention the increased tensions between Manila and Beijing, which began after maritime forces from both countries had a standoff over the Scarborough Shoal in April.

China's ambassador Ma Kequing was at the event where Aquino inaugurated the project but declined to comment.

Chinese government ships and fishing boats are still at the shoal, despite the Philippines withdrawing its vessels from the area in June.

The standoff has worsened bilateral ties, with the Philippines accusing China of "duplicity" and "intimidation" at a recent regional forum in Cambodia.

The recent arrival of a huge Chinese fishing fleet in the Spratly Islands -- another disputed territory in the South China Sea -- has also raised Philippine concerns.

Aquino's spokesman Edwin Lacierda said the Philippines continued to seek a peaceful resolution to the dispute and was trying to "de-escalate tensions" through its actions.

But, he stressed, "we will maintain our sovereign rights over our exclusive economic zone. That is something that we will not give up".

China claims nearly all of the South China Sea, even waters close to the coasts of neighbouring countries. The Philippines says the Scarborough Shoal is well within its 200-nautical-mile exclusive economic zone.