Dozens of Chinese soldiers have set up camp in a remote region claimed by India, according to Indian government sources.
Troops of the Chinese People's Liberation Army (PLA) entered Indian-claimed territory in eastern Ladakh, high in the Himalayas, and erected a camp on the night of April 15, the sources said.
New Delhi is confident it can settle the territorial dispute "peacefully" through diplomatic channels, they added.
India and China have an unresolved border dispute, and relations are often prickly and marked by mutual distrust -- the legacy of a brief, bloody border war in 1962 over the northeastern Indian state of Arunachal Pradesh.
"(Such) incidents do occur and are resolved peacefully on the basis of bilateral agreements which exist and mechanisms provided for in these agreements," a senior government source told AFP.
"We are confident the current incident too will also be peacefully resolved on this basis," the source said.
China and India share a de facto border, known as the Line of Actual Control (LAC), which has never been formally demarcated.
"As regards the distance that the Chinese are inside (Indian territory), this is an area where there have been differing perceptions of the Line of Actual Control," the Indian government source said.
But the Press Trust of India reported the Chinese platoon of around 50 soldiers was 10 kilometres (six miles) inside.
India and China are in touch over the incident via a working committee set up last year for consultation on India-China border affairs, according to the Indian government source.
Chinese troops are often reported to have crossed the Indian border but it is uncommon for them to establish a camp so far inside the contested area, observers said.
Troops from the Indo-Tibetan Border Police have set up a camp 300 metres (980 feet) opposite the tents pitched by the Chinese, the Press Trust of India said.