The Memorandum of Understanding was signed by visiting Defence Minister Pranab Mukherjee and his Chinese counterpart, General Cao Gangchuan after they held over two hours of talks here at the Central Military Commission headquarters.

"This is the first-ever agreement of its kind between the two countries and I am confident that it will serve as an effective framework for facilitating our defence dialogue and exchanges," Mukherjee told Cao during their interaction.

"We must work together to implement it fully," he said.

Addressing a press conference, Mukherjee said the MoU provides a formal basis for the first time for defence and military exchanges that have been taking place between the two countries in the last few years.

The MoU is a major confidence building measure (CBM) in the defence field between India and China and will contribute towards building up greater understanding and trust, he said.

The two defence ministers agreed to have frequent exchanges between the leaders and high-level functionaries of the Defence Ministries and the Armed Forces of the two countries. Both sides will work out an annual programme of exchanges.

The two sides also decided to hold an Annual Defence Dialogue, which would be hosted alternatively by the two sides to review progress in defence exchanges, make suggestions for the future and to exchange views on international, security and strategic issues.

The two ministers reached consensus to "endeavour to hold joint military exercises and/or training programmes in the field of search and rescue, anti-piracy, counter-terrorism and other areas of mutual interest.

Each side will invite senior military officers of the other side to witness designated military exercises, the MoU says.

The two sides agreed to establish a mechanism of study tours for each other's senior and middle level officials in order to facilitate better understanding of the foreign, defence and national development policies of the host side.

Participation in seminars and discussions on themes to be mutually agreed upon. Exchanges in other mutually agreed field to be decided through consultation.

Earlier, Cao accorded a ceremonial red carpet welcome to Mukherjee and welcomed him to China for a six-day official visit. Cao said that the Chinese government hoped peace, stability and economic growth would continue in the south Asia region.

Cao, also vice-chairman of the Central Military Commission and state councillor, said the Chinese government supported efforts of south Asian nations to push for regional cooperation.

Friendship and mutually-beneficial cooperation were in the fundamental interests of China and India, and were conducive to the peace, stability and development of Asia and the world, Cao was quoted as saying by Xinhua.

Mukherjee also held a meeting with Chinese Foreign Minster Li Zhaoxing, which he described as "very productive."

Li has pledged to step up strategic and cooperative relations with India in 2006, a year of friendship between China and India, Xinhua reported.

He said that China attaches great importance to relations with India, noting that the common prosperity of China and India, with one third of the world's population, would be a huge contribution to humankind.

Mukherjee said that India and China are good friends and share similar views on many issues, adding that the cooperation between the two countries and their active involvement in world affairs are conducive to the peace, stability and development of the world.

India will make concerted efforts with China to boost mutual understanding and trust in a bid to push forward bilateral relations, Mukherjee stressed.

The defence minister kicked off visit to China with a briefing session at the Academy of Military Science of the Chinese People's Liberation Army (PLA) here.

He also visited the ultra sensitive Beijing Aero Space Command and Control Centre of the PLA, the world's largest standing army of over 2.5 million.

Mukherjee will call on Chinese Premier Wen Jiabao tomorrow.

During his stay in China, he will also visit the headquarters of Lanzhou Military Region in Lanzhou city in northwestern China's Gansu Province and tour the Shanghai Naval Base in the country's economic hub in east China.

Mukherjee will leave for Singapore on June 2 to continue his three-nation official visit.