Taiwan Defence Minister Lee Tien-yu said he "has not heard of such a possible arms sale as reported," while replying to a query raised by an opposition lawmaker.

A military source told the Taipei-based China Times that "Washington is very likely to sell Taiwan Tomahawk cruise missiles if Taiwan is capable to mass produce its own Hsiungfeng 2E cruise missiles."

Such an arms sale would rankle Beijing, which regards the island as part of its territory awaiting reunification by force, if necessary.

A review of previous US arms sales to Taiwan, such as the sale of 150 F-16 fighters, the AIM-120 air-to-air missiles and Harpoon ship-to-ship missiles, came after Taiwan had developed similar weapons, the source said.

In so doing, Washington could keep Taipei's arms development project from "running out of control," the source said, adding the mass production of Hsiungfeng 2E missiles was estimated at 34.6 billion Taiwan dollars (1.1 billion US).

Taiwan acquired the cutting-edge Hsiungfeng 2E technology through a European country in the clandestine development of the cruise missile, the source said.

The defence ministry had planned to unveil the missile during its military parade on the October 10 National Day, but dropped the plan following reported pressure from Washington, Taipei's main ally.

The missile's specifications are not available, but analysts say it has a range of at least 600 kilometres (375 miles) and could be launched on land or at sea.

That means the missile could reach airports and missile bases in southeast China, as well as cities such as Shanghai and Hong Kong.

Rocky relations between Taiwan and China looked set to continue after the island's independence-leaning President Chen Shui-bian rejected a recent offer of peace with China, saying it was akin to "a treaty of surrender."

China has repeatedly threatened to invade the island should it declare formal independence, prompting Taiwan to acquire advanced weaponry, largely from the United States.

Taiwan earlier this month showcased two home-developed missiles in the parade -- the first in 16 years -- seen as a reminder to China that the island has the means to defend itself.

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