China's creation of new island footholds in contested seas will hover over a Southeast Asian summit that has become an annual test of the region's nerve in standing up to its massive neighbour.

The South China Sea hot potato drops this year into Malaysia's lap as the rotating chair of the 10 member Association of Southeast Asian Nations (ASEAN) and host of Monday's meeting.

ASEAN states Vietnam, the Philippines, Malaysia and Brunei claim parts of the strategic South China Sea, but Beijing claims nearly all of it and has moved aggressively to back that up.

Satellite photos that emerged this month triggered alarm bells by providing fresh evidence of large-scale reclamation works on contested reefs, which suggest that land masses big enough for airstrips and other large facilities are being created.

"It's a very significant escalation. We haven't really seen anything on this scale ever," said Ian Storey, a South China Sea expert at Singapore's Institute of Southeast Asian Studies.

"We are talking about construction of significant military and civilian facilities and infrastructure."

- Photographic proof -

The photos show a flotilla of Chinese vessels dredging sand onto Mischief Reef, which is near the Philippines and is claimed by Manila.

The activities there, and more advanced reclamation works elsewhere, raise the spectre of a permanent Chinese presence far out at sea from which it can project its growing might.

Manila also has accused China's coastguard of inciting recent confrontations with Philippine fishing vessels.

President Benigno Aquino warned in a recent AFP interview that China's actions "should engender fear for the rest of the world", and Philippine officials say he will seeks a strong statement of concern from ASEAN members in Malaysia.

But the bloc has a history of failing to reach consensus on any robust response, due to both its members' dependence on China's huge economy for trade and because not all ASEAN states have a stake in the maritime disputes.

Summit hosts Malaysia were caught off-guard in January 2014 when Chinese naval forces conducted exercises near James Shoal, which both countries claim.

During the operation, the sailors swore an oath to defend the sandy bank, according to Chinese media.

A Southeast Asian diplomatic source told AFP that a final summit statement by member states -- currently in a draft form -- will call for "self-restraint", avoiding threats or use of force, and the peaceful resolution of disputes, but will avoid direct criticism of Beijing.

The statement, which could change, also calls for ASEAN-China discussions on a code of conduct to preserve peace in the South China Sea to be expedited, the source said.

- 'Speed up' talks -

ASEAN has pushed China for more than a decade to agree on a code of conduct, but discussions on an agreement only stated in 2013.

Analysts say Beijing is dragging its feet on any rules that could impede its actions at sea, while beefing up its de facto presence in the meantime.

"We want (the talks) to be speeded up and we hope (China) will give us a positive response," Malaysian Foreign Minister Anifah Aman said Friday.

The Philippines and Vietnam have been the most outspoken countries in the region in criticising Chinese actions, and Manila said in February they were in talks to deepen bilateral cooperation, citing their "common concerns" at sea.

Malaysia avoids antagonising China on the issue, however, and Prime Minister Najib Razak is expected to place more emphasis on his plans to formally declare the establishment of the "ASEAN Economic Community" (AEC) by the end of the year.

ASEAN years ago set an ambitious 2015 deadline for the AEC -- a proposed single economic market with free flow of goods, capital and skilled labour across borders.

The plan envisions leveraging the immense trade and market potential of a region with a fast-growing population of around 630 million and expanding middle class.

But though tariffs have been stripped away, ASEAN diplomats said the AEC remains far-off due to significant non-tariff barriers, vested interests, and large development gaps between member-states.

Diplomats admit the year-end declaration is purely symbolic.

Muslim-majority Malaysia also will push for greater regional cooperation against extremism.

Malaysia and Indonesia both say that scores of their citizens have been lured to the Islamic State jihad in Syria, and have made a number of arrests of suspected IS sympathisers at home.