Sailors on board a Chinese navy craft fired two flares at four Vietnamese boats that had earlier failed to respond to whistles, shouts and signal flags demanding that they cease fishing and leave the area, which China claims as its territorial waters, the Defense Ministry said in a statement issued late Tuesday.
It said the ships were fishing illegally in Chinese waters off the Paracel Islands on March 20 and both flares burned out in the air. Chinese forces did not fire weapons and no Vietnamese boats caught fire.
Vietnam, which also claims the Paracels, said one of the boat's cabin's caught fire in the incident, which it called "very serious." The government lodged a formal complaint with the Chinese Embassy in Hanoi, seeking compensation for the alleged damage and punishment of the Chinese sailors responsible.
The fishing boat was near the Paracels when an unidentified Chinese vessel chased it and fired the flare, the Vietnamese government said in a statement issued late Monday.
The claim that a Chinese ship started a fire was a "sheer fabrication," the Chinese statement said, citing an unidentified navy spokesman.
China's Defense Ministry said the boats were in Chinese territorial waters and China was acting within its rights by driving them off.
"It is completely legitimate for Chinese vessels to expel boats that illegally enter China's territorial waters to safeguard the country's territorial sovereignty and marine interests," the statement said.
Chinese Foreign Ministry spokesman Hong Lei said Tuesday that China had taken unspecified but "legitimate and reasonable" actions against Vietnamese boats working illegally in Chinese waters. He denied that any boats had been damaged, but gave few other details.
There have been other clashes in the waters, often related to claims of illegal fishing or violations of fishing moratoriums unilaterally imposed by the Chinese.
Vietnam and China each claim large parts of the South China Sea. The Philippines, Malaysia, Taiwan and Brunei also maintain that parts of the sea are theirs.
The profile of the long-running disputes has been raised in recent years because of China's economic and military growth and subsequent American interest. The Paracels, which were occupied by China shortly before the end of the Vietnam War in 1975, are a particular flashpoint.
China last year incorporated the Paracels and most of its other South China Sea claims within the newly declared Sansha city-level administrative unit as way of raising the region's profile and increasing funds for infrastructure and economic development.
China is also boosting its civilian fisheries and maritime surveillance patrols in the area. China's navy also conducts missions in the South China Sea, although it has sought to keep military units out of conflict zones to avoid elevating tensions.