By Ben Blanchard and Linda Sieg
BEIJING/TOKYO (Reuters) - Japan has decided to deport Chinese activists who landed on a disputed isle at the heart of a territorial row, Kyodo news agency reported on Thursday, a move that could ease tension between Asia's two biggest economies.
The feud over the islands in the East China Sea has frayed relations between the two Asian neighbors, long bedevilled by the legacy of Japan's wartime occupation of much of China and contemporary rivalry over resources and regional clout.
China had earlier on Thursday renewed its call that the detainees be released "immediately and unconditionally".
Wednesday's landing, coinciding with the 67th anniversary of the end of World War Two, parallels tensions between China and Southeast Asia over rival territorial claims in the South China Sea. China's lengthening naval reach has fed worries that an aggressive Beijing could brandish its military might to get its way - and galvanized Chinese citizens' demands for tough action.
Experts have said that both Beijing and Tokyo probably want to cool things down, given their close economic ties.
"But when issues touching on nationalism are involved, there are aspects politicians cannot control. Things will not be resolved automatically and careful responses are needed," said Akio Takahara, a University of Tokyo professor, before news that the activists would be deported.
Seven of the 14 activists arrested had waded ashore and planted a Chinese flag on the rocky, uninhabited isle on Wednesday, prompting Japan and China to trade protests over the incident.
A coastguard official declined comment on the Kyodo report, while a police official said nothing had been decided.
China's ruling Communist Party is preoccupied with a looming leadership change, which will probably both increase its focus on internal stability and deter it from seeming soft on Japan, a country many Chinese still associate with wartime brutality.
"Just what kind of mentality has caused Japan to lose its self-restraint and repeatedly challenge China's staunch determination to protect its territory and sovereignty?" said China's Communist Party's mouthpiece, the People's Daily.
"IT'S JUST PLAIN LAZY"
Small protests were held sporadically amid tight security near Japan's embassy in Beijing, while China's government faced a storm of online criticism from Chinese bloggers demanding a tougher stance to ensure the activists' quick release.
"These islands are China's. We should use the military to protect our rights," said supermarket worker Song Gang, 25, who was walking near the Japanese embassy.
Around 30 people protested at the Japanese consulate in Hong Kong, chanting slogans and demanding the activists' release.
Japanese Prime Minister Yoshihiko Noda, his popularity ratings tanking after about a year in office and possibly on his way out soon, also faces domestic pressure not to appear weak.
"The prime minister should visit the islands. If he doesn't go at this point, it's just plain lazy," said the nationalist governor of Tokyo, Shintaro Ishihara.
His proposal for the Tokyo Metropolitan Government to buy the islands from their private owners ratcheted up tensions and pushed Noda to try to have the central government make the purchase instead.
A Japanese nationalist group is sponsoring a weekend trip by lawmakers and others to waters near the island, although the government has denied permission to land.
"In both countries, there is a tail wagging-the-dog phenomenon, with lower-level politicians or individual activists taking nationalist stances or actions and forcing the central governments to respond to escalating tension," Stephanie Kleine-Ahlbrandt of the International Crisis Group said by email.
"While Japan's national leaders are navigating a fragmented and shifting political landscape, the Chinese leadership is steering a potentially treacherous power transfer, limiting the political capital available to either Tokyo or Beijing to go against populist or nationalist sentiment."
With economic links tighter than ever, both sides probably want to avoid a rerun of a nasty spat two years ago after Japan's arrest of a Chinese trawler captain whose boat collided with a Japanese patrol boat near the islands.
China at the time imposed a de facto ban on exports of rare earth metals vital for electronics and auto parts manufacturing.
On Thursday, China's commerce ministry urged Japan to handle the issue properly. "China hopes Japan can make concrete efforts to create a good environment for the sound development of bilateral economic and trade relationships and advance the development of the strategic and mutually beneficial relations," said ministry spokesman Shen Danyang.
Japan's relations with former colony South Korea have also nosedived over a separate islands row. Adding to the anger of Japan's neighbors, two Japanese ministers paid homage at a shrine for war dead on Wednesday.
(Additional reporting by Tetsushi Kajimoto, Kiyoshi Takenaka and Olivier Fabre with Linda Sieg in Tokyo, Chris Buckley in Beijing, Tara Joseph and James Pomfret in Hong Kong; Editing by Nick Macfie and Ed Lane)