China says it will build a school in the disputed Paracel Islands, boosting its presence in waters also claimed by Taiwan and Vietnam.
China calls the island Yongxing and has been building up a settlement there for the last two years.
The school is expected to serve just 40 children, whose parents all work on the tiny island.
Last month, Chinese and Vietnamese ships clashed over a drilling rig that China has placed near the islands.
Beijing claims a U-shaped swathe of the South China Sea that covers areas other South East Asian nations say are their territory.
The issue has been rumbling in recent years amid an increasingly assertive stance from China over its claims.
Analysis by the BBC's Michael Bristow
This is the latest construction project on the island of Yongxing.
There is already a hospital, a library and an airport. It also has mobile telephone coverage.
China has been building there for the last two years, ever since it announced that the tiny settlement was a city, the administrative centre for a vast swathe of the South China Sea.
The school will teach the children of the island's growing population, mostly made up of soldiers and construction workers.
But it has a wider significance: it helps cement China's territorial claims in the area.
Others may have competing claims - but those will be hard to enforce as China already has a growing presence there.
Earlier this month, the UN said it was willing to mediate between China and Vietnam in the dispute.
Beijing claims almost the entire sea, based on a mid-20th Century map with a line apparently delineating Chinese territory, and vague historical claims going back more than 1,000 years.
Vietnam says it has controlled the Paracels for centuries.
Last month China's decision to move the rig sparked anti-Chinese protests in Vietnam, with mobs attacking factories and businesses.
The Philippines is also in a territorial dispute with China and is in the process of taking China to a UN court over its territorial claims.
It has also recently signed a new security deal with the US which would allow an expanded US troop presence, in a move seen as linked to Manila's deteriorating ties with Beijing.