China has raised the administrative status of Xisha, Zhongsha and Nansha islands from county to prefectural level in disputed waters, the latest escalation in tensions over the resource-rich South China Sea, according to an official statement released on Thursday following a Vietnamese law asserting sovereignty over the islands.

The statement from the Ministry of Civil Affairs said the State Council has approved to set up the prefectural-level city of Sansha to administer the three island groups and their surrounding waters. It said the government seat will be stationed on Yongxing Island, part of the Xisha Islands.

The county-level administration office for the islands, also established on Yongxing in 1959, has been abolished, the statement said.

The new-born city is China’s biggest by size and least populated, with 13 square kilometers of islands area and over 200 square kilometers of waters where around 3,500 people live permanently and 25,000 are a floating population, according to the Legal Evening News.

A spokesperson for the Ministry of Civil Affairs told the official Xinhua News Agency on Thursday that setting up Sansha city will help to improve China's "administrative management on Xisha, Zhongsha and Nansha islands and their future development".

"It is also conducive to protecting the oceanic environment of the South China Sea," the spokesperson was quoted as saying.

China first discovered and named the reefs, islets and surrounding waters of Xisha, Zhongsha and Nansha islands, and has sovereignty over the area, the spokesperson said.

China has conflicting claims with the Philippines, Vietnam, Brunei, Malaysia and Taiwan across the South China Sea, key shipping lanes thought to contain rich energy reserves. Vietnam and the Philippines have been the most vocal opponents of China's claims.

Xu Liping, an expert on Southeast Asia issues at Chinese Academy of Social Sciences, said the move shows China’s latest measure to assert sovereignty over the area, and is also a response to the Philippines and Vietnam’s asserting sovereignty over the islands.

Vietnam's new Maritime Law declaring sovereignty and jurisdiction over the Paracel and Spratly Islands drew such a huge outcry that Chinese Vice Foreign Minister Zhang Zhijun summoned Vietnamese Ambassador Nguyen Van Tho and told him that the law was a "serious violation" and called for an "immediate correction", Reuters reported.