Indian Prime Minister Narendra Modi held talks Sunday with his counterpart during a visit to Mongolia, with the two nations upgrading relations as Delhi tries to strengthen its influence in China's backyard.

Meeting Prime Minister Chimed Saikhanbileg, Modi praised the resource-rich nation as "the new bright light of democracy in our world" and said the two were "closely linked to the future of the Asia-Pacific region".

Mongolia is seeking to counterbalance China's growing influence in the landlocked nation.

The leaders signed a joint statement upgrading relations to a "strategic partnership", just a year after Mongolia and China reached a similar agreement.

Other agreements included a $1 billion line of credit from India to support the expansion of Mongolia's infrastructure, and promises to deepen cooperation on border security and defence.

Mongolia's economy -- fuelled in recent years by a mining boom that led to high rates of growth, peaking at 17.5 percent in 2011 -- depends largely on trade with China.

Yet it remains wary of China's economic dominance, which has prompted a rise in protectionist government policies and resource nationalism in the country of only three million people.

Mongolia has also sought to strengthen relations with Japan and has maintained trading ties with neighbouring Russia, hosting President Vladimir Putin last year.

Modi, who began his East Asian tour in China, is the first Indian prime minister officially to visit Mongolia. He will go on to South Korea.

On Sunday he visited the Gandan Monastery, a Tibetan-style Buddhist institution in the capital Ulan Bator.

After posing with China's Premier Li Keqiang last week, Modi pressed on with "selfie diplomacy" -- posting a mobile phone snap of himself and Mongolian President Tsakhiagiin Elbegdorj on Twitter.

"President Elbegdorj and I say hello!" he wrote.