Shinzo Abe, Japan's prime minister, said on Tuesday that he was proud to be the one to establish the defence ministry "as an organisation that plays the role of national defence that is inalienable from state sovereignty".
"This is a big step towards building a new nation after emerging from the past war regime," he said after the elevation ceremony.
Beijing also saw it as a big step.
China's official news agency Xinhua said: "On the surface it is only a slight change in words [but] the difference in essence is fundamental.
"The moves provide sufficient reason for people to worry if Japan is able to stick to the pacifist path and to truly reflect on history."
North Korea threat
Japan's military activities have long been constrained by the nation's pacifist US-drafted constitution and Abe, the nation's first prime minister born after the second world war, has made revising the charter a key policy goal despite some reservation among voters.
Asian nations that suffered from Japanese military aggression are wary of anything that suggests a move away from pacifism.
Shinzo Abe says it is a "big step ... after emerging
from the past war regime" [Reuters]
Fumio Kyuma, who was elevated from defence agency chief to minister, cited North Korea's missile launches and a nuclear test last year as evidence of Japan's difficult security situation.
"Our nation also needs to respond more positively to international activities for peace and stability."
Pyongyang's atomic test on October 9 prompted some Japanese politicians to suggest that Tokyo should at least discuss acquiring its own nuclear weapons.