Claims by an increasingly powerful China over most of the South China Sea have set it directly against U.S. allies Vietnam and the Philippines. Brunei, Taiwan and Malaysia also claim parts of the waters and China has a separate dispute with Japan in the East China Sea.
A statement posted on the Vietnamese government's website said the trawler was chased away and came under attack from Chinese ships near the Paracel islands on March 20, calling the incident a breach of international maritime law.
Vietnam's state-controlled newspapers showed photographs on Tuesday of what they said were the charred remains of the ship's cabin.
"This is a very serious case, violating Vietnam's sovereignty," the Foreign Ministry said in the statement posted late on Monday.
"Vietnam resolutely opposes this and demands China investigates and strictly deals with the above inhumane wrongdoing and compensates for the damages carried by Vietnamese fishermen."
Vietnam's condemnation of China's claims to the sea and its numerous reefs and tiny islands was the strongest since early December, when it accused Chinese ships of sabotaging an exploration operation by state oil and gas company, Petrovietnam by cutting a seismic cable.
Chinese Foreign Ministry spokesman Hong Lei rejected Vietnam's claim that the trawler had been damaged and urged it to teach its fishermen to stay out of its waters.
"The response by the relevant Chinese body against the illegal Vietnamese fishing boat was appropriate and reasonable," Hong told reporters in Beijing.
"We hope the Vietnamese side takes earnest steps to improve education for and management of fishermen to stop such illegal activities."
The South China Sea holds around 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proven and probable reserves, according to the U.S. Energy Information Administration.
In a sign of China's increasing military assertiveness at home and abroad, it announced earlier this month a 10.7 percent increase in annual defense spending to 740.6 billion yuan ($119 billion).
The latest flare-up comes at a bad time for the Association of Southeast Asian Nations (ASEAN), which on April 24 will begin its first summit of the year in Brunei.
The South China Sea has long been a divisive issue for the a grouping set to become an integrated economic community within three years. Several of its members are dependent on China for trade and investment, while others are at odds with Beijing over its maritime claims.
ASEAN's credibility was dealt a major blow last year when it failed to issue a joint communiqué for the first time in its history, with no agreement among its 10 members on a common stance over the South China Sea.
China was accused of leaning on allies to ensure there was no mention of the issue in the statement, a claim it denied.
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