The memorandum of understanding was signed during a visit by Indian Defence Minister Pranab Mukherjee to Beijing, foreign ministry spokesman Liu Jianchao told reporters.

"Military exchanges will be an important part of bilateral ties," Liu said.

"Reinforcement of mutual trust and exchanges will be benefitial for the development of all-round cooperation partnership in the two countries."

The Indian defence ministry said ahead of Mukherjee's trip, which began Sunday, that the agreement would institutionalize training, exercises and other contacts between the armed forces of the countries.

The agreement would aim to develop a "strategic and cooperative partnership for peace and prosperity between India and China," and enhance trust between their two militaries, the ministry said.

The China Daily reported Monday that the agreement could become an instrument for a regular and sustained dialogue between the two countries on defence issues.

Mukherjee held meetings with his Chinese counterpart Cao Gangchuan and Foreign Minister Li Zhaoxing on Monday, then met with Premier Wen Jiabao on Tuesday.

During his five-day trip, Mukherjee will also visit military bases in Beijing and Shanghai as well as in Lanzhou, the capital of northwest China's Gansu province, the Indian embassy said.

China-India relations have improved in recent years as both countries have made efforts to complement instead of compete with each other's growth.

However, the two still have not resolved a decades-old border dispute -- the result of a brief but bitter conflict in 1962.

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