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Japan and China must tone down the nationalism that has fuelled rising bilateral tensions, while the world must adapt to China's surging growth or be left behind, Singaporean Prime Minister Lee Hsien Loong said.

Speaking in Tokyo Lee said "friction is inevitable" between Japan and China "as both enlarge their influence regionally and internationally."

"A collision is not inevitable, because both governments see the benefits of cooperation and neither wants a conflict," he said.

"But both sides need to moderate nationalist sentiments, manage territorial and other disputes which arise and find wise ways to gradually defuse the issue and work toward reconciliation," Lee told a forum in Tokyo hosted by the Nihon Keizai Shimbun business daily.

Lee was visiting Japan amid the latest spat between the Asian powers after Chinese Vice Premier Wu Yi abruptly cancelled a meeting with Japanese Prime Minister Junichiro Koizumi over his visits to a shrine to war dead.

China says the Yasukuni shrine is a monument to World War II militarism, while Koizumi says he pays annual respects at the Shinto sanctuary in reaffirmation of Japan's post-war pacifism.

China in April saw major protests venting fury at Japan over its record on history and denouncing Japan's cherished bid to win a permanent seat on the UN Security Council.

Lee, who has previously criticized Koizumi's war shrine visits, said that toning down nationalistm "will also help Japan to make a fuller contribution internationally and take its rightful role amongst the community of nations."

Lee warned it was futile to resist China's growing economic clout.

"It competes with developed countries in R&D (research and development) and high-end manufacturing and with developing countries in low-cost, labour-intensive operations," he said.

"Those which stand still and resist inevitable changes will ultimately lose their export markets or see their existing activities hollowed out," he said.