China and Japan reached a major breakthrough on Friday, with consensus on handling contentious historical and territorial issues after years of standoffs that soured ties between Asia's two largest economies.

The two countries also agreed to gradually resume political, diplomatic and security dialogues through various channels and to set up a crisis-management mechanism for the East China Sea, where tensions have been rising.

The Principled Agreement on Handling and Improving Bilateral Relations was released after State Councilor Yang Jiechi held talks in Beijing with Shotaro Yachi, Japan's national security adviser.

A Foreign Ministry statement said the two countries "have acknowledged that different positions exist between them" regarding the Diaoyu Islands and the East China Sea.

The two countries said they will follow the principles of the four political documents drawn up between them.

They also agreed to prevent the situation from worsening "through dialogue and consultation" and to "establish crisis management mechanisms to avoid contingencies".

Top Japanese political figures have long denied the existence of a dispute over the islands, and critics said Friday's agreement sends a clear signal that Tokyo acknowledges the existence of Beijing's position.

Yang Bojiang, deputy director of the Institute of Japanese Studies at the Chinese Academy of Social Sciences, said it is the first time since the two countries normalized their diplomatic relations in 1972 that an official bilateral document has been formulated to clearly state the existence of the islands dispute.

Chinese observers expressed cautious optimism, calling for more conducive follow-up action from Tokyo.

Qu Xing, president of the China Institute of International Studies, said the agreement is "one step forward" in addressing global concerns over the worsening security situation in the Asia-Pacific region, and that the relationship "will be tangibly improved" if all the agreements are fully honored.

The statement said the two countries have reached "some agreement on overcoming political obstacles in bilateral relations".

In December, Japanese Prime Minister Shinzo Abe plunged the relationship to a new low by visiting Tokyo's Yasukuni Shrine, which honors 14 Class-A war criminals from World War II.

Although the agreement does not mention the shrine, Beijing has long defined any pilgrimage to it by a Japanese leader as a major political obstacle.

Yang said he believes that Abe will refrain from visiting the shrine in the foreseeable future.

Gao Hong, deputy director of the Institute of Japanese Studies at the Chinese Academy of Social Sciences, said the agreement mirrors mounting domestic pressure on Abe for a thaw in ties.

China and Japan "have just got off to a start" but the issues won't be resolved overnight, Gao said.

State Councilor Yang confirmed that the two countries have "conducted rounds of consultations through diplomatic channels to overcome political obstacles".

He urged Tokyo to "face up to and properly handle issues of great sensitivity, such as history and the Diaoyu Islands".