Taiwan: China plans 'Taiwan war games'
The move is set to stoke tensions with Taiwan, which Beijing views as part of its territory.
It came as a US report on China's military build-up said Beijing was bolstering its arsenal so it could win a possible conflict with Taiwan.
China dismissed the Pentagon report, accusing the US of exaggerating its military capabilities.
China's war games were reportedly due to take place in June and July on Dongshan Island in south-eastern Fujian province, just 150 nautical miles from Taiwan's Penghu Island.
About 18,000 personnel will reportedly be taking part - deployed from the land, navy and air force of the Nanjing Military Region, according to Ta Kung Pao, a pro-Beijing newspaper in Hong Kong.
Foreign ministry spokesman Liu Jianchao defended the war games, saying: "It is necessary and rational for China to hold military exercises for the sake of national defence."
"We stand ready to exert our utmost sincerity and utmost efforts to seek peaceful reunification, but we will never allow Taiwan independence and never allow anybody in any form to separate Taiwan from China," he told a briefing, according to the French news agency AFP.
America's 'Cold War thinking'
In a report on China's military build-up issued last week, the Pentagon said China had bolstered its military with more sophisticated missiles and lasers, aimed at winning a possible conflict with Taiwan.
The report, an annual assessment of China's military capabilities, said Beijing had deployed more than 500 short-range ballistic missiles, positioned near Taiwan.
But Chinese spokesman Liu Jianchao said the report was "filled with Cold War thinking".
"It replayed the old tune of the 'China threat', intentionally exaggerating China's military force and defence expenditures. I think it has ulterior motives," he said.
Mr Liu said China was peace-loving, and insisted that it was natural for a country to built up its military.
He also repeated Chinese calls for Washington to stop selling arms to Taiwan.
While the US does not recognise Taiwan as an independent country, it is bound by law to provide the island with weapons for self-defence.