Foreign Minister Murray McCully has made his strongest comments so far on the dispute in the South China Sea, criticising the increase in military presence and saying any serious confrontation would affect all in the region including New Zealand.

The comments appeared to be aimed mainly at China which has been strongly criticised by the United States and Australia for building up its military capacity in the disputed region.

Speaking at the Lee Kuan Yew School of Public Policy in Singapore, Mr McCully said New Zealand had no position on the various territorial disputes.

"But we do have a stake in how these disputes are managed."

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He said there was increasing heightened tension in the disputed area caused largely by reclamation and construction activity and deployment of military assets in disputed areas.

"We regard all of these activities as unhelpful regardless of the party responsible."

Mr McCully warned the increased tension raised the risk of "miscalculation".

"History has shown us that any incident in the South China Sea can escalate, even if that was not the intention of the countries involved."

Mr McCully signalled a hope China would not allow things to escalate or turn its back on diplomatic efforts to resolve the situation because a stable region was also important for China's economic growth. He was "both a realist and an optimist" about the rise of China.

"A realist because the emergence of a huge economic power was always going to come with ambitions and aspirations to match, and some of these inevitably compete with established players and interests."

He said that was the great challenge of regional diplomacy.

"But I remain an optimist because China has huge domestic challenges to meet. Sustained economic growth is critical to bringing about the internal transformation that is their key goal."

He said that growth could only take place in an environment of peace and stability in the region.

Mr McCully has previously refused to be drawn on the issue beyond saying anything that antagonised it was "unhelpful" and he hoped the countries involved would resolve it.

China has objected to the United States flying military aircraft over the area while the US has urged other countries to do the same to assert the right to use it as international airspace under international law.

Mr McCully said any serious confrontation would have implications for everyone in the region, given the importance of regional stability and of the South China Sea for the global economy as a trading route.

"As a country with one of the largest EEZs in the world, New Zealand regards the UN Convention on the Law of the Sea as particularly important. So are the international legal principles of freedom of navigation and overflight. They are vital for New Zealand's livelihood."

Countries including Brunei, Malaysia, the Philippines, Taiwan and Vietnam have overlapping claims to the territory.