The article, which cited "sources close to the U.S. firm", said Chinese diplomats in Washington had made repeated verbal protests to Exxon Mobil executives in recent months, and warned them its future business interests on the mainland could be at risk.

The protests involve a preliminary co-operation agreement between state oil firm PetroVietnam and Exxon Mobil covering exploration in the South China Sea off Vietnam's south and central coasts, the article said.

It did not state when the co-operation agreement was signed.

The report quoted the unnamed sources as saying Exxon Mobil was confident of Vietnam's sovereign rights to the blocks it was exploring, but it could not dismiss China's warnings out of hand.

The newspaper said China's foreign ministry did not immediately respond to queries about the situation and an Exxon Mobil spokesman refused to discuss any approaches from China.

But it quoted Vietnamese Foreign Ministry spokesman Le Dung as saying it needed to be "clearly asserted" that Hanoi's dealings with foreign oil partners fell entirely within Vietnam's legal rights and sovereignty.

China and Vietnam have a number of festering disagreements about territory. The two countries dispute sovereignty over the Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits and also claimed by Taiwan, Brunei, Malaysia and the Philippines.

China supported the Vietnamese Communists in their decades-long war against South Vietnam and its U.S. sponsors.

But Vietnam has traditionally been wary of its larger Asian neighbour and in 1979 the two countries fought a brief border war after Vietnam occupied Cambodia and overthrew the murderous Khmer Rouge regime that favoured Beijing.

Though Vietnam and China have agreed to cooperate in oil and gas exploration in the Gulf of Tonkin in the north, last year BP P halted plans to conduct exploration work off the southern Vietnamese coast, citing the territorial tensions.

And in December China chided Vietnam after protests in front of the Chinese Embassy in Hanoi proclaiming that the Spratly and Paracel islands belonged to the Vietnamese.

By Jeffrey Hodgson - Reuters - July 20, 2008