The two countries were locked in a showdown since September last year over the islands in East China Sea, called Diaoyu by China and Senkakus by Japan.
"The two sides should handle the Diaoyu Islands dispute properly in order to ensure that bilateral relations remain on a track of healthy and stable development," Jia Qinglin, the fourth ranking leader of the outgoing leadership of the ruling Communist Party of China said in his meeting with former Japanese Prime Minister Yukio Hatoyama on Wednesday.
Jia, who will be retiring along with President Hu Jintao in March, is the Chairman of the consultative body called the Chinese People's Political Consultative Conference.
His comments came as the two countries deployed surveillance ships and planes to monitor each other's movements in the disputed islands rising prospects of military hostilities.
Jia said cooperation between China and Japan will serve the fundamental interests of both sides, as well as the region and the international community.
China attaches importance to its ties with Japan and will continue to work to develop bilateral relations in accordance with previous agreements, Jia said.
Hatoyama, who is reportedly involved in back channel diplomacy, is on a personal visit to China.
Jia's comments came as the new Japanese Prime Minister Shinzo Abe launched a high profile visit to Vietnam, choosing it to be his first overseas visit after taking over power.
Vietnam along with Philippines has raised concerns over China's assertiveness in the disputed South China Sea. Abe is looking to rally in South East Asian states, which have maritime disputes with China. He is also visiting Thailand and Indonesia.
Asked about Abe's visits, China's foreign ministry spokesman Hong Lei urged Japan to make concrete efforts and take effective measures to resolve tensions over the Diaoyu Islands and improve bilateral relations.
Reiterating China's claims to the Diaoyu Islands, Hong said the Japanese government should recognise historical facts and the current situation and resolve issues through dialogue and discussion.
Commenting on Abe's visit to Vietnam, Jia Duqiang, a researcher at the Chinese Academy of Social Sciences, said China should be confident of its position and reach out to its neighbours to counter Abe's diplomatic blitz.