MANILA, Philippines - (UPDATE) The Philippines wants claimants to disputed South China Sea islands to agree on a code of conduct but that would not resolve who owned and could tax the sea's mineral wealth, President Benigno Aquino said.

His comments in an interview with Reuters on Friday shows differences remain between close US ally Philippines and China, which has in the past opposed multilateral discussions to resolve the territorial dispute.

Aquino also said the Philippines would continue to upgrade its military capabilities, including its capacity in the South China Sea, but said this could not be seen as an offensive move as the country has inadequate defense facilities.

"There are a lot of claimants to the disputed areas, so for it (a code of conduct) to be binding, it has to be on a multilateral basis," Aquino, wearing the Filipino's traditional "barong" shirt, said at Malacañang presidential palace in the old part of Manila.

China, Taiwan and four Southeast Asian states, including the Philippines, have conflicting claims over features and waters in the South China Sea, which is believed to sit on huge deposits of oil and natural gas.

China's preference is for bilateral negotiations, with no role for outside parties such as the United States. Beijing has rejected Manila's request for United Nations' arbitration, and Aquino said the government was looking at other options.

Manila and Hanoi protested against aggressive action by China in the South China Sea earlier this year, including accusations of intrusions into Philippine territory nine times and firing of shots at fishermen.

During a visit to China in late August and September, Aquino said he and President Hu Jintao had agreed on the need for a binding code of conduct.

There is currently an informal code, signed in 2002 by China and the Association of Southeast Asian Nations (ASEAN), but it is non-binding and has no enforcement mechanism.

There have been proposals for joint development of resources in contested waters. Aquino, the 51-year-old son of two heroes of the country's democracy movement, said joint development was fine, but couldn't happen until ownership was determined.

"For instance, there will be royalties due if there is exploitation of resources there; who actually will be profiting from these royalties?," he said.

"If sovereignty is not resolved, then the question of where the royalties should go to will not also be resolved."

In July, an Australian think tank warned that incidents in the sea could lead to war in Asia.

US Secretary of State Hillary Clinton has said Washington remains committed to the defense of the Philippines, but it did not takes sides in the territorial dispute.