After four years of on-off talks, Asia's two largest economies agreed to share the potentially lucrative gas resources from an area that lies near islands which remain a focus of bitter dispute.

But the two sides continue to dispute other gas fields in the East China Sea and, in a sign that even the limited deal is controversial, Chinese nationalists protested Wednesday outside the Japanese embassy in Beijing.

In the crux of the deal, Japan's private sector will invest in China's ongoing development of the Chunxiao gas field, which Japan calls Shirakaba, the two sides said. The amount of investment was still being worked out.

Japanese Prime Minister Yasuo Fukuda hailed the deal over the East China Sea.

"We will try to turn it into a sea of peace and friendship. We will develop gas fields in the area by cooperating with each other," Fukuda told reporters.

Japanese Foreign Minister Masahiko Komura called the deal a concrete step in reconciliation between the two countries, which have often had uneasy relations.

"This is a good example of how we can resolve a difficult problem through dialogue," Komura said.

In Beijing, a Chinese foreign ministry statement said that the deal would contribute to the "healthy and stable development of China-Japan relations."

"It is in line with the fundamental interests of the two countries and their people," it said.

But outside the Japanese embassy, Chinese authorities -- who generally tightly control protests -- allowed 15 nationalists to stage a demonstration, shouting slogans such as "Japan get out of the East China Sea."

Authorities made no effort to disperse the crowd and, unusually, even allocated a space for journalists, who were allowed to interview the demonstrators.

China's relations with Japan have long been tense due to the legacy of Tokyo's imperialism before and during World War II.

China insists that its sovereign zone in the East China Sea extends nearly up to Japan's southern island chain of Okinawa and had firmly rejected Japan's earlier proposals for a median line dividing the gas fields.

China started drilling in Chunxiao in 2003, inflaming tensions with Japan, which voiced worries that Beijing may siphon gas from what it considered its own side.

In 2004, amid sour political relations, a Chinese nuclear submarine intruded into Japan's waters near the gas fields, setting off a two-day chase on the high seas.

Under the deal, the two countries would also jointly develop an area north of Chunxiao. But the two sides failed to resolve their disagreement over two other gas fields in the area.

Chinese President Hu Jintao paid a landmark visit to Tokyo last month pledging reconciliation, although the two countries failed to resolve the gas dispute in time for his visit.

Japan has virtually no natural energy resources on its own, while China has been rapidly expanding consumption as its economy soars.

"For Japan, it's part of the country's long-term efforts to reduce its heavy reliance on oil imports from the Middle East," said Yoshihisa Miyamoto, an analyst at Okasan Securities in Tokyo.

"For China, securing stable energy supply is a pressing need to sustain its hot economy," Miyamoto said.

The Chunxiao field has explorable reserves of 63.8 million barrels of oil equivalent out of a total of 3.26 billion barrels in the East China Sea, according to data from the two countries.

Japan consumed 97 billion cubic metres of gas in 2006, or 610 million barrels of oil equivalent, almost all of which was imported, according to the International Energy Agency.

Natural gas meets about 15 percent of Japan's energy needs, with about 60 percent used to generate electricity.

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