Beijing will spend 1.11 trillion yuan ($175 billion) on its military, according to a budget report presented before the opening session of the annual National People's Congress.
The outlay compares with a seven percent increase last year and 7.6 percent in 2016, which marked the first time in six years that spending growth was not in double figures.
China spent $151 billion on the People's Liberation Army last year, the second largest defence budget in the world but still four times less than the $603 billion US outlay, according to the International Institute for Strategic Studies, a London-based think tank.
The defence budget increase has roughly kept pace with China's national economic output in recent years. The economy grew by 6.9 percent in 2017 and the government said Monday it will target growth of around 6.5 percent in 2018.
"We can expect that China's defence budget will continue to be subordinated to, and coordinated with, China's economic performance. It will likely not be over-militarised," said James Char, a military expert at Singapore's Nanyang Technological University.
China's neighbours and the United States have watched warily as Beijing has modernised the world's largest army, reducing its ground troops to two million soldiers while spending on state-of-the-art hardware and weapons.
At the same time, Beijing has imposed increasingly assertive claims to vast expanses of the contested South China Sea, while engaging in confrontations with Japan over disputed islands in the East China Sea and with India over Himalayan border regions.
As the People's Liberation Army marked its 90th anniversary in August, Xi warned that China will protect its sovereignty against "any people, organisation or political party".
Since coming to power in 2012, the president has trumpeted the need to build a stronger combat-ready military, while cementing his leadership over the army, which was ordered to pledge absolute loyalty to him last year.
At a major Communist Party congress in October, Xi vowed to build a "world-class" fighting force by 2050.
The PLA has stocked up on stealth fighter jets, warships and high-tech weaponry over the years.
Last year, China unveiled its first domestically-built aircraft carrier, which will carry J-15 fighters that will take off from a raised "ski jump" platform. It also launched a new class of destroyer.
Its military has one operational carrier -- the Liaoning -- a Soviet-era vessel bought from Ukraine that was refitted and commissioned in 2012.
The chairman of the Dalian Shipbuilding Industry, which worked on both ships, said the company was "ready to build larger" carriers after gaining the experience to make more, the state-run China Daily newspaper said Friday.
China has also opened its first overseas military base in the Horn of Africa country of Djibouti.
Since 2008, its navy has participated in anti-piracy operations off the coast of Somalia and in the Gulf of Aden.
Closer to home, China has in recent years built artificial islands -- some with airstrips -- capable of hosting military installations in the South China Sea, inflaming tensions with its Southeast Asian neighbours.
US warships, meanwhile, regularly conduct "freedom of navigation" operations near the islands to challenge China's territorial claims.
Brunei, Malaysia, the Philippines, Vietnam and Taiwan have contested China's claims to the sea.
China's military budget is "disproportional in the sense that the economies of Southeast Asia do not have the resources to keep pace" and Japan's constitution restricts military spending, said Matthew Funaiole, a fellow with the China Power Project at the Center for Strategic and International Studies (CSIS) in Washington.
"Whether or not this is a 'threat' depends on how China utilises its capabilities. That said, its maritime presence is certainly growing."
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