One of the United States’ most senior ex-military officers has warned that China and the US risk open conflict over the South China Sea because of basic misunderstandings between the two nations.

The former head of National Intelligence and US Pacific Command, retired Admiral Dennis Blair, told Four Corners he does not believe either America or China wants to go to war to end the stand-off.

But both sides are locked into opposing positions that make it almost impossible to reach a compromise, he said.

The South China Sea is one of the most disputed regions on Earth, with competing claims over islands and reefs from various countries, including traditional US ally the Philippines.

China has laid claim to a swathe of shoals and islands inside what is known as the “Nine-Dash Line”, which represents about 90 per cent of the South China Sea.

“When I’m in discussions with Chinese [officials] I’m incredibly righteous from the American point of view,” retired Admiral Blair said.

“I think there’s a notable inability for the two of us to understand what’s going on, on the other side and to find compromises we can both live with.”

Previously unreleased satellite images obtained by Four Corners show that as recently as last month, Chinese construction crews were continuing engineering works to turn submerged coral atolls into well-developed island bases.

Both sides are locked into opposing positions that make it almost impossible to reach a compromise. Photo: AAP.

Chinese coast guard vessels have kept foreign fishing boats well away from those islands and warned aircraft from flying over their airspace.

Retired admiral Blair said China’s claims were “intolerable” for the US and the impasse created a situation in which neither side can be seen to be backing down.

“We seem to have to deal by a series of concessions or wins, and that’s the kind of relationship that can escalate up over time,” he said.

“[It could] lead to conflict. Misunderstanding, then fear and conflict.”

If conflict were to occur, the retired Admiral said “neutralising” China’s outposts in the South China Sea was “probably 10 or 15 minutes’ worth of worth of work for US forces”.

He called on the Australian Defence Force to participate in joint exercises with the US through the contested waters.

“I think Australian and American ships should exercise together in the South China Sea, showing that, when they need to, they will send their armed forces in international airspace and water,” he said.

Foreign Minister Julie Bishop said the US had never asked Australia to take part in exercises within disputed territorial waters.

“We will continue to do what we’ve always done and that is traverse the South China Sea, exercising our rights of passage over water, through the skies,” Ms Bishop said.

A satellite image shows Chinese development on an island in the Cuarteron Reef in the South China Sea. Photo: AAP.

In July, the court ruled in the Philippines’ favour and found that China’s Nine-Dash Line claim was “incompatible” with the United Nations Convention on the Law of the Sea.

China immediately rejected the ruling and refused to recognise the jurisdiction of the court.

“The assertions of China were contradictory, unlawful and [in] gross violation of international law,” former Philippine secretary of foreign affairs Albert Del Rosario said.

“We hope that the international community will help us in abiding by the ruling.”

You can see the report on Four Corners at 8.30pm Monday on ABC TV.