About 100 troops from each country will participate in the military exercise in China's Yunnan province.

"The focus of the joint exercise will be on counter-terrorism measures. This is significant for the relationship between the two countries," Indian defence ministry spokesman Sitanshu Kar said.

The world's two most populous nations are forging new ties amid soaring trade and business links despite serious differences over their Himalayan border, the cause of the 1962 conflict.

"The exercise is undoubtably significant. India wants to be increasingly engaged with China," said Alka Acharya, head of East Asian Studies at Delhi's Jawaharlal Nehru University.

"It wants a comprehensive relationship, and this has been on the cards for some time."

India has also been pursuing closer relations with the United States, something that worries China.