* China boosts defence spending by 8.1 pct from 2017
* China says advancing military training, "war preparedness"
* Taiwan, Japan call for transparency from China (Adds Taiwan government statement)
BEIJING, March 5 (Reuters) - China unveiled its largest rise in defence spending in three years on Monday, setting a target of 8.1 percent growth for this year, fuelling an ambitious military modernisation programme and making its neighbours nervous.
The 2018 defence budget will be 1.11 trillion yuan ($175 billion), according to a report issued at the opening of China's annual meeting of parliament.
The defence spending figure is closely watched around the world for clues to China's strategic intentions as it develops new military capabilities, including stealth fighters, aircraft carriers and anti-satellite missiles.
China will "advance all aspects of military training and war preparedness, and firmly and resolvedly safeguard national sovereignty, security, and development interests", Premier Li Keqiang told the opening session in an address.
"Faced with profound changes in the national security environment" the absolute leadership of the military by the ruling Communist Party must be observed, and the unity between the government and the military, and the people and the military, must always be "strong as stone", he said.
Li also said China had basically completed efforts to cut back the size of its armed forces by 300,000, a move President Xi Jinping announced in 2015 to improve efficiency that had caused unease in the ranks.
China's military build-up has rattled the nerves of its neighbours, particularly because of its increasingly assertive stance in territorial disputes in the East and South China Seas and over Taiwan, a self-ruled territory Beijing claims as its own.
"We would like to see China be more transparent about its defence policy, including spending and the direction of its military power," Japan's Chief Cabinet Secretary, Yoshihide Suga, told a regular briefing.
Taiwan's China policy-making Mainland Affairs Council said China's moves to raise defence spending and military drills have increased tension.
"China should take international concerns seriously, increase its defence budget's transparency and give up its targeted military deployment towards Taiwan in order to avoid an escalation of regional tension," it said.
The 2018 defence spending increase comes as China's economic growth expanded 6.9 percent last year, the first acceleration in annual growth since 2010. But China kept its 2018 economic growth target at around 6.5 percent, said Li, the same as in 2017, despite exceeding that year's target.
Last year, defence spending was set to increase just 7 percent, to 1.044 trillion yuan ($164.60 billion), or about one-quarter of the proposed U.S. defence spending for the year. In 2016, it grew 7.6 percent.
"The pace and scale of this build-up are really dramatic. It is extremely alarming for Australia and many other countries in the region," said Sam Roggeveen, a visiting fellow at the Strategic and Defence Studies Centre of the Australian National University in Canberra.
"There is every indication that China wants to expand what it will call defence capabilities in the South China Sea. I expect eventually we will see warships and aircraft there regularly, if not based there permanently. What is unclear, however, is whether the United States will want to rise to that challenge."
China does not provide a breakdown of how it allocates its defence budget, leading neighbours and other military powers to complain that Beijing's lack of transparency has added to regional tension.
Diplomats say China's defence numbers probably underestimate true military spending for the People's Liberation Army, the world's largest armed forces, which are in the midst of an impressive modernisation programme overseen by Xi.
One senior Asia diplomat, speaking before the announcement, said the real rise would probably be at least double what China revealed, considering its efforts to build up the industrial military complex and deepen military-civilian integration.
"Some spending will be hidden in civilian spending," said the diplomat, speaking on condition of anonymity.
With worries about potential disputes with the United States in the region, China's military had mounted what defence sources and diplomats viewed as a lobbying campaign for more spending.
In an article on its website, China's Defence Ministry cited Chen Zhou, a researcher at the Academy of Military Science, as saying the spending increase was "reasonable" and "sustainable" and that there were no "hidden military funds".
U.S. President Donald Trump has proposed a military budget that is the largest since 2011 and focused on beefing up the United States' nuclear defences and countering the growing strength of China and Russia.
The proposal, part of Trump's budget request for the U.S. government, would provide the Pentagon with $617 billion and an additional $69 billion to fund ongoing wars in fiscal year 2019. That is $74 billion more than in the previous fiscal year's budget.
Chinese Vice Foreign Minister Zhang Yesui on Sunday said China's "moderate" defence spending rises in the past few years were less than other major countries and would not threaten anyone. (Reporting by Christian Shepherd, Michael Martina, and Ben Blanchard; Additional reporting by Colin Packham in SYDNEY, Kaneko Kaori in TOKYO, and Yimou Lee in TAIPEI; Editing by Kim Coghill and Nick Macfie)