The new surface-to-surface Hsiungfeng III would outperform the China's Russia-made SS-N-22 Sunburn supersonic anti-ship missile, the Liberty Times said.

The Hsiung Sheng Project is 80 percent complete following a test last month, the paper cited an unnamed general as saying, adding that the entire project is expected to be finished in two years.

The missile would be installed on Taiwan's Perry-class and French-built Lafayettee-class frigates, now armed with Hsiungfeng II surface-to-surface missiles, it said.

The missile, with a range of 300 kilometers (186 miles), would be able to reach China's Zhejiang and Fujian provinces, as well as waters east of Guangdong province.

Defense ministry officials were unavailable to comment on the report.

Taiwan has developed various surface-to-air, air-to-air and ship-to-ship missiles under Chungshan Institute of Science and Technology, which is also working on the Hsiungfeng II E cruise missile.

Separately, the Liberty Times said the United States has agreed to arm the four Kidd-class destroyers the Taiwan navy plans to buy with 240 Standard II-3A air defense missiles.

The Kidd destroyer can engage six aircraft simultaneously with the missile, which has a range of 90 nautical miles (166 kilometers), the paper said.

The deal, worth 24.8 billion Taiwan dollars (726 million US), is still pending the parliament's final approval.

Taiwan is striving to beef up its missile capabilty in a bid to thwart military threats from China.

A Pentagon report released in July warned that the People's Liberation Army has deployed 350 ballistic missiles along Fujian province opposite Taiwan, with the number expected to increase by 50 each year.

Defence chiefs have warned the military balance in the Taiwan Strait could be tipped in China's favor by 2005 if Beijing's arms build-up continues at its present pace.

China has repeatedly warned it could use force against Taiwan if it tries to declare formal independence.

Beijing has regarded the island as part of its territory awaiting reunification since the two split in 1949.

SPACE.WIRE