President Ma Ying-jeou's proposal came after Japanese Defense Minister Satoshi Morimoto warned that Tokyo could send troops to the archipelago, known as Senkaku in Japan, Diaoyu in the mainland and Diaoyutai in Taiwan.

"The recent rise of tensions due to the Diaoyutai dispute has the potential to jeopardize peace and stability in East Asia," Ma said as Taiwan marked the anniversary of a peace treaty between Tokyo and the Kuomintang government led by Chiang Kai-shek after Japan's World War II defeat.

"Peace and prosperity in the region have not come easily, and the Republic of China never again wants to see a catastrophe such as the Second Sino- Japanese War happen here," he said, using Taiwan's official name.

Activists have tried to sail to the disputed area to press Taipei's claim.

Last month, coastguard vessels from Taiwan and Japan "bumped into" each other near the chain, as the Taiwan vessel escorted activists to the area.

While renewing Taiwan's territorial claim, Ma urged all parties to show self- restraint, shelve controversies and use peaceful means to solve the dispute.

He said: "A consensus on a code of conduct in the East China Sea, and on a mechanism for cooperation on exploring and developing resources in the East China Sea, would help ensure peace."

Tensions between Beijing and Tokyo rose last month after mainland vessels twice entered waters near the resource- rich islands. Japan lodged two formal complaints with Beijing and summoned the Chinese ambassador in protest.

The uninhabited outcrops were the scene of a nasty spat in late 2010 when Japan arrested a mainland trawlerman for ramming two coastguard vessels.

Tensions spiked in April after Tokyo governor Shintaro Ishihara proposed that the islands be bought from their Japanese owner. Japan's premier said the central government is also considering this, sparking an angry response from Beijing. AGENCE FRANCE-PRESSE