Asahi Shimbun said the Japanese government on July 6 informed Tokyo's governor Shintaro Ishihara of its plan to buy three of the islands from their private Japanese owner.
In April, Ishihara announced he was in talks to buy the three islands -- Uotsurijima, Kitakojima and Minamikojima -- claiming that Japan was not doing enough to protect the territory.
The chain includes two other islands and an outcropping of rocks.
The influential daily said senior government officials were already negotiating with the owners, the Kurihara family, hoping to finalize the nationalization plan by the end of the year.
The Tokyo metropolitan government said it had already collected more than 1.3 billion yen ($16.3 million) in donations from across the country to fund the purchase.
Meanwhile, China said Japan had no right to purchase the islands.
China maintains that the islands are an inherent part of its territory and it has indisputable sovereignty over them. Japanese government, on the other hand, regards these islands as a part of Ishigaki, Okinawa Prefecture.
The islands have been under Japanese administrative control since the reversion of Okinawa to Japan from US administrative rule in 1972.
Potentially large deposits of natural gas off the islands are believed to be source of the territorial dispute between China and Japan.
Energy-hungry China is carrying out exploration activities near the islands and is preparing to develop the gas fields. Japan is anxious that the activities jeopardize its interests.
Tensions soared when Japan detained a Chinese trawler captain after his ship collided with two Japanese Coast Guard patrol vessels near Senkaku/Diaoyu islands on September 8, 2010.
The captain was later freed by the Japanese authorities on September 25 of that year.
China demanded a formal apology. Japan however rejected the idea, insisting that China must pay damages to cover the repair of its two patrol vessels.
China has called on Japan to respect Beijing's "indisputable sovereignty" over disputed uninhabited islands in the East China Sea, which are again the cause of fresh bitter territorial dispute between the two countries.
Chinese Foreign Minister Yang Jiechi met with Japanese counterpart Koichiro Gemba on the sidelines of the Association of Southeast Asian Nations (ASEAN) in the Cambodia capital Phnom Penh on Wednesday, and he "reaffirmed China's principled position" on the islands known as Diaoyu in Chinese and Senkaku in Japanese.
“He stressed that Diaoyu Islands and their affiliated islets have always been China's territory since ancient times, over which China has indisputable sovereignty,” a statement from the Chinese delegation read.
The statement added, “Yang urged Japan to adhere to relevant agreements and understanding between the two sides in good faith, return to the right path of managing differences through dialogue and consultation with the Chinese side and take concrete actions to uphold the overall interests of the bilateral ties.”
Gemba, for his part, lodged a "strong" protest with his Chinese counterpart Yang Jiechi over the entry of Chinese patrol ships into waters near the Japan-controlled Senkaku Islands.
The crew of the vessels initially rebuffed Japanese orders to leave, Japanese officials said.
Chinese authorities, on the other hand, said the vessels -- Yuzheng-202, Yuzheng-204 and Yuzheng-35001 -- conducting routine patrols in the East China Sea to safeguard the interests of Chinese oceanic fishing industry and ensure safety of Chinese fishermen.
Japanese Prime Minister Yoshihiko Noda indicated on July 7 that Tokyo intends to buy three of the uninhabited islands in the East China Sea from their Japanese owner to bring them under state control.
Noda's comments came after a report in the