Japan's Coast Guard Sunday saved all 64 Chinese seamen from their burning cargo ship, as the two nations remain locked in an acrimonious dispute over contested islands.

The coast guard was alerted by Taiwan authorities late Saturday about a fire on the 12,703-ton Ming Yang and sent patrol vessels and aircraft to the scene, around 150 kilometers southeast of Okinawa.

By 2:30 am Sunday a Japanese coast guard ship had saved 21 people who escaped on a life raft, while 43 others remained on the deck of the burning freighter, registered in Saint Vincent and the Grenadines.

All of the Chinese seamen were rescued by 3:47 am, with three of them suffering minor injuries, the coastguard said.

It said the ship's chief engineer had reported hearing sounds resembling an explosion from the main engine on Saturday evening.

The Japan Coast Guard has been busy kept busy monitoring waters around disputed islands, known as Senkaku in Japan and Diaoyu in China, far to the west of the burning freighter.

The coast guard said four Chinese official vessels were in contiguous waters around the islands Sunday.

Such vessels have been spotted in waters off the islands as the dispute escalated over the last two months, with the boats at times entering a 12-nautical mile territorial zone.

Tensions between the two nations peaked in mid-September after Japan's government bought a number of the disputed islands. (AFP)