The coral fishing boat with a crew of 13 was stopped by a coastguard patrol in waters some 46 kilometres northeast of Miyako island in the Okinawan chain, the local branch of the Japan coastguard said.
Its captain was arrested on suspicion of fishing in the exclusive maritime zone without permission from Japan, the coastguard said.
The incident occurred amid a simmering dispute over the Tokyo-administered Senkaku islands, which China also claims and calls the Diaoyus.
It came on the same day that Prime Minister Shinzo Abe toured the southern region of Okinawa near the disputed islands in the East China Sea, where he vowed to defend Japan against "provocations".
His comments came in the same week that his government approved a rise in defence spending for the first time in over a decade, explicitly aimed at beefing up defence of the contested island chain.
Chinese government ships have routinely circled the islands since September when Tokyo nationalised some of them.
Chinese planes have also sporadically breached the airspace over them, stoking the long-running sovereignty row.
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