The Philippines is prepared to use military force to protect its territory in the South China Sea, President Benigno Aquino said Monday amid a deepening rift with China over the waters.

Aquino told congress in his annual "State of the Nation Address" that his government was sending a message to the world by upgrading its poorly equipped armed forces, including by acquiring a new navy ship and weapons.

"We do not wish to increase tensions with anyone, but we must let the world know we are ready to protect what is ours," Aquino said to a round of applause from politicians and invited guests.

Aquino said the Philippines would no longer allow other countries to enforce their will over territorial disputes.

"There was a time when we couldn't appropriately respond to threats in our own backyard," he said.

"Now our message to the world is clear. What is ours is ours; setting foot on Recto Bank is no different from setting foot on Recto Avenue."

Recto Bank is the Philippine name for Reed Bank, a group of tiny islands in the South China Sea that is claimed by the Philippines and China, while Recto Avenue is a major road in the heart of the capital, Manila.

Manila accused Chinese navy boats of harassing a Philippines-commissioned oil exploration vessel near Reed Bank in March, one of the incidents that triggered a dramatic rise in bilateral tensions.

China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan have overlapping claims to all or parts of the South China Sea, which is believed to be extremely rich in oil and gas deposits.

Tensions in the decades-long dispute escalated this year amid accusations from the Philippines and Vietnam that China was becoming increasingly aggressive in staking its claims to the sea.

Aside from harassing the oil exploration vessel at Reed Bank, the Philippines accused Chinese forces of shooting at Filipino fishermen and placing markers on some of the islets.

The Philippines has one of the weakest military forces in the region, with its airforce lacking any fighter aircraft and its navy made up mainly of World War II-vintage US ships.

However the Philippines secured a promise from the United States in June for help in modernising its armed forces, after appealing to its longtime ally for protection amid its rift with China.

A decommissioned US Coast Guard patrol vessel that will become the Philippines' biggest navy ship is due to reach Philippine shores next month, which Aquino highlighted in his speech.