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East China Sea dispute proves to be one of the complicated issues in Sino-Japanese relations. Since both countries’ dependence on oil and natural gas is growing every day to run their economic engines, both China and Japan consider East China Sea resources essential for their energy needs. The incidents occurring in the territorial waters of each other can be escalated to a military clash in the sea between Japan and China. The article tries to examine the origins of the dispute as well as the diplomatic efforts made by China and Japan to resolve the puzzle. The article also discusses the island dispute between Japan and China in the light of history evidences and international law point of view.