The referendum will be a key part of Chen's campaign, as he faces a tough battle for re-election next year. It is also meant to provoke an angry reaction from China to consolidate support at home, say analysts.

"On March 20 next year, we can hold a referendum to safeguard national sovereignty, to defend national security," Chen told a campaign rally late on Saturday.

His comments were broadcast on local cable news networks.

Taiwan's parliament approved a bill on Thursday allowing referendums on constitutional changes as well as a "defensive
referendum" on sovereignty in the event of an attack from China or other national security threats. 

Lawmakers dropped the most controversial part of the legislation - a clause explicitly stating referendums can be held on independence or on changing the island's name or flag
- which China had vehemently opposed. 

"A defensive referendum is defensive in nature. If we wait until the Communists attack, it will be too late. There will be no need to hold a referendum"

Chen Shui-bian,
Taiwan President

But Chen appeared to be ready to put the "defensive
referendum" to use. 

"Facing an external threat is a present tense for Taiwan, the country's sovereignty may be altered at any time," Chen said.

"A defensive referendum is defensive in nature. If we wait until the Communists attack, it will be too late. There will be no need to hold a referendum," he added. 

Beijing views Taiwan as a breakaway province to be brought back into the fold, by force if necessary. It said after the bill's passage that it was gravely concerned and would never tolerate an attempt to separate the island from the mainland.

Chinese 'spy' nabbed

Meanwhile, Taiwan has seized a missile researcher for allegedly selling state-of-the-art military technology to China, in one of the worst espionage scandals ever cracked there, officials said.

The arrest comes against a backdrop of worsening relations between Taiwan and China after Taiwan passed the referendum law.

Huang Cheng-an, 55, a staff memberof the military-run Chungshan Institute of Science and Technology, was arrested on Saturday night after he was questioned by investigators and a prosecutor, the defence ministry said. 

"Lured by Beijing's money, Huang has handed over some data of his unit to the Chinese communists," it said. 

Initial probe also found that Huang, a graduate of Taiwan's air force academy, had attempted to conspire with local arms suppliers and Middle East agents to make "smart bombs" for sale to Egypt, it said. 

The attempt was botched after Huang failed to obtain the crucial technology, the ministry said.

Investigators are also tracking down other suspects implicated in the alleged espionage.