In a New Year broadcast, his last while in office, Chen warned however that no pact would be possible if Beijing kept its 'One China' policy, which views Taiwan as Chinese territory awaiting reunification with the mainland.

Taiwan and China have been ruled separately since splitting in 1949 at the end of a civil war. Relations have been tense ever since, with the militaries in both nations on permanent alert for any sign of attack.

Chinese President Hu Jintao called in October for an agreement to formally end the state of hostilities.

"We wholeheartedly welcome and look favourably on any proposal that might be conducive to maintaining peace and stability across the Taiwan Strait," Chen said in an address broadcast live on television.

He said he had asked for cooperation with China in establishing a military buffer zone and a security consultation mechanism that would lead to setting up a code of conduct in the Taiwan Strait.

"However, normalisation of relations between Taiwan and China cannot be advanced if pre-conditions are already imposed," added Chen, who belongs to the ruling independence-leaning Democratic Progressive Party (DPP).

"Setting pre-conditions is equivalent to establishing foregone conclusions, lacking sincerity and allowing no room for consultations and negotiations," Chen said.

"This once more underlines the reality that the 'one-China principle' poses the biggest obstacle to improving Taiwan-China relations."

Chen is on his second term as president and cannot stand in March elections to choose his successor. He will formally retire in May.

Controversially, he is planning to push ahead with a referendum on joining the United Nations under the name "Taiwan" despite objections from China and key ally the United States.

"Taiwan is a sovereign country... Taiwan has the right to a seat in the UN and its 23 million people have the right to voice their aspiration for UN participation through referendum," he said.

The issue is a highly sensitive one -- Taiwan, under its official name the Republic of China, lost its UN seat to China in 1971 and is now only recognised diplomatically by 24 countries.

Efforts over the past 14 years to rejoin the world body using its official name have also been repeatedly shot down by Beijing, a permanent, veto-wielding member of the UN Security Council.

Its latest attempt -- for the first time under name Taiwan -- was blocked last September.

Meanwhile Chen accused China of stockpiling more than 1,000 missiles facing Taiwan.

"Over the past seven-plus years, the number of tactical ballistic missiles deployed by China on its side of the Taiwan Strait has increased from 200 in 2000 to today's 1,328, by our accounting," Chen said.

He also criticised Beijing's moves to create an "air defence identification zone" in the Taiwan Strait and open a new civil air route.

"In doing so, China is once again challenging and attempting to unilaterally change the status quo in the Taiwan Strait," he said.

"Faced with China's belligerent rhetoric and military intimidation, the people of Taiwan have no choice but to become more strongly united. United, we need not fear the enemy's 'united front warfare' and divisive tactics."

Taiwan has deployed three US-made Patriot anti-missile batteries to defend the densely populated greater Taipei area, and is seeking to purchase more to shield the entire island.

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