April 13 (Bloomberg) -- Japan's government said it will allow oil drilling in an area of the East China Sea claimed by China, a decision that may escalate tension between the nations amid anti-Japanese rioting in Beijing and other Chinese cities.

The government will start procedures to grant drilling rights to Japanese companies in the area, the Ministry of Economy, Trade and Industry said in a statement in Tokyo today. The government earlier said a field being developed by China's CNOOC Ltd. extends into Japanese territory.

More than 20,000 people turned out in Beijing, Guangzhou and Shenzhen over the weekend to protest against Japanese textbooks that play down wartime atrocities in China. Protesters hurled rocks, bottles and eggs at the Japanese Embassy in Beijing and as many as 15,000 Chinese rallied outside Japanese-owned department stores in the southern cities.

China's soaring demand for oil, gas and other natural resources has intensified competition with Japan, Asia's biggest economy, for fields in Russia, Southeast Asia and the Middle East.

CNOOC, China's largest offshore oil producer, expects to produce as much as 1 billion cubic meters of natural gas a year from the disputed Chunxiao field in the East China Sea, CNOOC's Chairman Fu Chengyu said on March 29.

Japanese explorers Teikoku Oil Co., the largest producer of natural gas from fields in Japan, and Japan Petroleum Exploration Co., the nation's second-largest oil explorer, have applied for permission to develop the gas fields and are waiting for approval from the government.

Japan's government on April 1 said that the Chunxiao and Duangqiao fields extend over the border into Japan's exclusive economic zone.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.

Last Updated: April 12, 2005 22:27 EDT