The Apple Daily newspaper said the Chungshan Institute of Science and Technology -- the military's weapons development unit -- for the first time test-fired the missile in Chiupeng, the heavily guarded missile base in the southern Pingtung county, on September 25.

The missile, designed with a range of between 600 kilometers and 900 kilometers (360 miles-540 miles), could be used to attack Shanghai, Hong Kong and major coastal cities in the southeast of China should a war break out in the Taiwan Strait, the daily said.

The test-fire failed for unknown reasons, it said.

But the paper said, "once successful, the missile would mark a critical breakthrough in the development of a strike-back capability against any missile blitz by China".

The defense ministry declined to comment on the report, but its brief statement on the stance of weapons development was seen as unusual by military experts.

The defense ministry said: "The country's national defense technology development has been guided by the principle of 'effective deterrent, strengthening defense'."

Yet it added: "We're not afraid of fighting and are ready to fight when necessary, but we are not going to fire the first shot."

The Pentagon released a report earlier this year saying China's most immediate threat to Taiwan is a force of 450 short-range ballistic missiles in the Nanjing Military Region across the Taiwan straits from Taipei.

Beijing has repeatedly threatened to invade should the island declare formal independence.

Taiwan and China split in 1949 at the end of a civil war.

SPACE.WIRE