India and China on Monday decided to step up military-to-military exchanges, hold a counter-terrorism dialogue and increase confidence-building measures to maintain peace along the Line of Actual Control.

The counter-terrorism talks will be held in Beijing next month, an official source said at the end of the first day of talks between visiting Defence Minister George Fernandes and the Chinese leadership.

Fernandes, who is the first Indian defence minister to visit China in over a decade, had 'fruitful' meetings with Chinese Premier Wen Jiabao, Defence Minister General Cao Gangchuan and Vice-Chairman of the Central Military Commission General Guo Boxiong.

"The talks were held in a cordial atmosphere and both sides expressed satisfaction over the fact that the Sino-Indian boundary remained tranquil," the official said.

Fernandes, who is on a weeklong visit to China, stressed that the two countries are 'good' neighbours and as members of the international anti-terrorism alliance, they have cooperated well.

"As the two countries confront the same challenges in national security, the two militaries should further cooperation and exchanges," he said.

Fernandes, who called on Wen, talked about the planned visit of Prime Minister Atal Bihari Vajpayee to China later this year.

Wen said Vajpayee's visit would be an important trip in Sino-Indian ties.

While welcoming Fernandes, Wen said China and India should do more to cement their ties.

"Our two big countries should always be friendly with each other from generation to generation," he said at the meeting, which was held at the Zhongnanhai Chinese leadership compound in Beijing.

Fernandes is the first Indian leader to meet China's new generation of Communist Party and government leaders.

Wen also noted that China and India have enjoyed friendly cooperation and contacts since second century BC.

"So I think during the past 2200 years, about 99.9 per cent of the time we have devoted to friendly cooperation between our two countries," Wen, also a politburo standing committee member of the ruling Communist Party of China, said.

The remaining 0.1 per cent time that the premier did not refer to could be the 1962 India-China war as well as the disturbances after the 1998 nuclear tests by India.

Earlier in the morning, Fernandes, attired in a bandh-gala, inspected a guard of honour presented by the tri-service PLA marching contingent of the Chinese People's Liberation Army.

After the ceremonial welcome, Fernandes held official talks with Gen Cao. During the talks, the general said the armed forces of China and India have enhanced mutual trust and understanding, and also maintained stability in the border area, thanks to exchanges of visits over the last few years.

Indian and Chinese frontier forces have had frequent exchanges and established friendship on the basis of mutual understanding, said Fernandes, according to the Xinhua news agency.

"With similar national situation, the two countries share a wide range of interests in the world and have identical views on many international issues," the agency quoted Gen Cao as saying.

Gen Cao, who is also vice-chairman of the Central Military Commission and state councilor, said that the two nations have established and developed a constructive and cooperative friendship.

"It conforms to the fundamental interests of the two nations to live in harmony and strengthen cooperation. China is willing to work with India for regional peace and stability," he said.