State councillor Dai Bingguo made the warning to Japan's ambassador in Beijing, Uichiro Niwa, summoned shortly after midnight.
China's top-ranked diplomat intensified pressure on Japan over a territorial rift, warning Tokyo on Sunday against making "misjudgements" over the seizure of a Chinese fishing boat in disputed seas.
It marked another diplomatic escalation in the territorial rift between Asia's two biggest economies and has set back efforts to ease decades of distrust.
State councillor Dai Bingguo made the warning to Japan's ambassador in Beijing, Uichiro Niwa, summoned shortly after midnight to hear China's latest demand for the release of a Chinese captain and crew whose fishing boat collided with two Japanese coast guard ships in disputed seas last week, Xinhua news agency reported.
Dai advises China's top leaders on foreign policy and serves on the State Council, or government cabinet, outranking the foreign minister within the ruling Communist Party hierarchy.
"(He) solemnly stated the Chinese government's major concerns and urged Japan not to misjudge the circumstances and to make the wise political choice of immediately returning the Chinese fishermen and their boat," Xinhua reported.
On Friday, a Japanese court authorised a 10-day extension in detaining the arrested Chinese fishing boat captain, whose 14 crew members are also being held.
Beijing and Tokyo have so far confined their dispute to diplomatic sparring and avoided measures that would take them back to the icy hostility of several years ago.
A step in that direction could worry investors, focused on the two countries' growing trade flows, which reached 12.6 trillion yen ($150.4 billion) in value in the first half of 2010, a jump of 34.5% on the same time last year.
The Japanese ambassador has already been called in by China's foreign ministry three times to hear complaints about the case, which has given an emotive focus to long-running territorial quarrels between Beijing and Tokyo over East China Sea islets, called Senkaku in Japan and Diaoyu in China.
Late on Friday, China called off planned talks with Japan over an undersea gas bed dispute in another part of the Sea and warned that worse repercussions may follow.
On Saturday, Japan made a formal protest after a Chinese oceanic administration ship tried to stop a Japanese Coast Guard vessel 280km (174miles) northwest of Japan's southern Okinawa island.
Relations between Beijing and Tokyo have long been dogged by mutual distrust and Chinese bitterness over Japan's occupation of much of China before and during World War Two.
Chinese media have warned that public opinion could become riled by the arrest and Beijing's official stand appears partly driven by that pressure.
Since big public protests in China against Japan and bitter diplomatic exchanges in 2005 and 2006, both sides have sought to improve ties.
But they have stubborn disagreements over their sea rights.
Tokyo maintains that China's exploration for natural gas in the East China Sea threatens gas beds extending under what it deems Japan's maritime zone. China denies there is such a problem and disputes Japan's definition of the sea boundary.
In 2008, they agreed in principle to solve the dispute by jointly developing gas fields.
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