Japan's Prime Minister Naoto Kan said on Thursday China should free jailed Nobel Peace laureate Liu Xiaobo, in comments that threaten to again inflame ties still raw after a territorial spat.

Kan was speaking as the Asian economic giants and rivals are planning a summit meeting to mend relations that sharply deteriorated after Japan's arrest of a Chinese trawler skipper in disputed waters over five weeks ago.

Despite the efforts toward a diplomatic thaw with Beijing, Japan's premier was clear when asked about Liu, a veteran pro-democracy activist serving an 11-year jail term on subversion charges in the communist nation.

Asked in parliament whether Liu should be released, Kan echoed the stance of Washington and Brussels, saying: "From the viewpoint that universal human rights should be protected across national borders, it is desirable."

"Along with the international community, I am watching whether he will be able to attend the Nobel Prize award ceremony or whether his wife or family members will attend," said Kan, a one-time grassroots civic activist.

"I think it is important that human rights and fundamental freedoms, which are universal values, should also be guaranteed in China."

China - which surprised Japan with its hardball diplomacy during their row - has also reacted with fury to the Nobel committee's choice, censored news on the award and restricted the movement of the dissident's wife.

Kan was quick to add that "Japan-China relations are getting back to the basics of a mutually beneficial strategic partnership", and Chief Cabinet

Secretary Yoshito Sengoku said Japan would not formally request Liu's release.

Japanese negotiators have held talks in China this week to arrange a summit between Kan and Chinese premier Wen Jiabao at the end of the month in Vietnam, on the sidelines of a regional meeting with Southeast Asian leaders.

Japan's Yomiuri Shimbun and Nikkei dailies reported Thursday that senior diplomats had on Wednesday agreed to arrange the summit.

The two leaders met briefly and informally in Brussels during an Asia-Europe meeting on October 4 for their first talks since a tense maritime incident in the East China Sea sparked their most bitter row in years.

China broke off all high-level contact with Tokyo after Japan on September 8  arrested a Chinese fishing boat captain whose vessel had collided with two Japanese coastguard ships near an island chain claimed by both sides.

In a multi-pronged diplomatic offensive, China launched a series of protests, condemned the move in the state-run press, repeatedly summoned Japan's ambassador and cancelled several cultural exchanges.

Amid the spat China also detained four Japanese citizens - although they were later freed, following Japan's release of the Chinese skipper - while also stopping exports of rare earth minerals crucial for high-tech Japan.

The maritime feud has undermined painstaking efforts to improve relations that remain volatile because of mistrust stemming from Japan's brutal invasion and occupation of China in the 1930s and 40s.

Japan's Defence Minister Toshimi Kitazawa and Chinese counterpart Liang Guanglie met in Hanoi Monday for the first time since the row erupted and agreed to set up a liaison system to avert future maritime confrontations.

Japan's Foreign Minister Seiji Maehara, known as a China hawk, was however cautious on Thursday about the state of Sino-Japanese ties.

"Various issues lie between Japan and China, such as the issue of rare earths and the East China Sea," Maehara said, referring to the export freeze and a dispute over rights to gas fields in waters claimed by both countries. "Without resolving these issues while defending Japan's position... I don't think Japan-China relations will naturally improve very quickly," he said.