The Foreign Ministry said it was not aware of Chinese investment in a Russian-held island claimed by Japan.

Japan's Kyodo News reported that Russian and Chinese companies agreed earlier this month to launch a joint venture to farm sea cucumbers off one of the four disputed islands near the northeast coast of Japan's Hokkaido prefecture.

Foreign Ministry spokesman Ma Zhaoxu on Tuesday said that the Chinese government had nothing to do with any such business deal.

"We don't know anything at all," he told a regular news conference, reiterating China's stance that the dispute is a bilateral issue for Russia and Japan and can only be solved effectively through friendly negotiations.

The report claimed a memorandum of understanding had been signed between a company based on the disputed island known as Kunashir by Russia and Kunashiri by Japan and a firm in northeastern China's coastal city of Dalian. The joint venture was due to start work in April after an environmental assessment had been conducted.

This is the first report of alleged business activity by a company from a third country on the disputed islands. Japanese Prime Minister Naoto Kan told reporters that it is incompatible with his country's position.

Russian Foreign Minister Sergei Lavrov said earlier that Moscow would be happy to see Chinese, Korean and even Japanese investment in the disputed islands.

But Japanese Foreign Minister Seiji Maehara said that investment in the islands from a third country would complicate the situation.

The Japanese government believes that Japanese acceptance of third-country investment in the islands would effectively mean recognizing Russian control of them.

Analysts said that the report has not been confirmed and, even if it is true, the investment does not involve any government bodies.