China deflected pressure to censure North Korea at a regional summit on Sunday, instead urging its neighbours to calm tensions over the sinking of a warship and avoid any clash that could shake Asia.

Seoul and Tokyo blame North Korea, whose leader Kim Jong-il visited China earlier this month, of torpedoing South Korea's Cheonan corvette in March, killing 46 sailors - the deadliest military incident since the Korean War.

China, which is North Korea's biggest trade partner and which fought alongside the North in the 1950-53 Korea War, has declined to publicly join international condemnation of Pyongyang, saying it is still assessing the evidence.

Chinese Premier Wen Jiabao kept to that stance at the two-day summit in Seogwipo, a honeymoon resort on South Korea's Jeju island, which was originally meant to focus on regional economic integration.

'The pressing task now is to respond appropriately to the serious effects of the Cheonan incident, to steadily reduce tensions, and especially to avoid a clash,' Wen said, standing next to Japanese Prime Minister Yukio Hatoyama and South Korean President President Lee Myung-bak at the end of the summit.

Wen did not mention North Korea by name, nor did he give any firm indication that China would accept any UN Security Council effort to condemn or sanction the North.

North Korea has repeatedly denied responsibility for the Cheonan incident. The official Korean Central News Agency said on Saturday the United States was blaming the North for the ship sinking in order to keep a US Marine base in Japan and make China feel 'awkward'.

South Korea last week announced a series of sanctions against its neighbour, including cutting trade, resuming propaganda broadcasts across the border, and launching naval exercises near the disputed Yellow Sea maritime border. It has also pledged to take its case to the UN Security Council.

China and Japan are the world's number two and three economies and, with South Korea, account for close to 20 per cent of global economic output. Instability on the Korean peninsula could have grave implications for the global economy.

'I think China was cautious because it does not want North Korea to lash out,' Hatoyama told reporters at a separate briefing after the summit.

North Korea needed to be taught a lesson so it will mend its ways, but war is not an option, said South Korean President Lee.

'We are not afraid of war, nor do we want one,' he told Wen and Hatoyama, according to Lee's office. 'We have no intention of fighting a war.'    

South Korea's Lee indicated that he expected China to back a UN Security Council response to the sinking. 'China and Japan have very important roles to play in the international community and I fully expect them to have wisdom on this issue,' he said.

As a permanent member of the UN Security Council, China has the power to veto any proposed resolution or statement.

'With regard to the Cheonan, China seems confident that tensions will eventually diminish,'  wrote Stephanie Kleine-Ahlbrandt, the North East Asia project director for the International Crisis Group, a non-government advisory organisation, in an emailed response to questions.

Hatoyama said Japan will back Seoul when it takes the North to the UN Security Council. But Pyongyang may not bow even if China goes along with such steps, said Kleine-Ahlbrandt.

'We have seen plenty of cases in which external pressure has not worked on North Korea,' she wrote.

'It is, therefore, questionable whether further measures will have the desired effect in this situation.'    

North Korea has warned of war on the Korean peninsula if Seoul imposes sanctions, calling the South Korean government 'military gangsters, seized by fever for a war'.-Reuters