Over the next five years, Japan will buy hardware including drones, aircraft and amphibious vehicles.
The military will also build a new marine unit, an amphibious force capable of retaking islands.
The move comes with Tokyo embroiled in a bitter row with Beijing over East China Sea islands that both claim.
It reflects concern over China’s growing assertiveness over its territorial claims and Beijing’s mounting defence spending.
“China’s stance toward other countries and military moves, coupled with a lack of transparency regarding its military and national security policies, represent a concern to Japan and the wider international community and require close watch,” the national security draft said.
Japan first increased defense spending in January, after a decade of cuts.
PM Shinzo Abe, who was elected a year ago, has called for Japan to broaden the scope of activities performed by its military – something currently tightly controlled by the post-war constitution.
He has also established a National Security Council that can oversee key issues.
Approving the national security strategy made Japan’s foreign and security policy “clear and transparent – for both the Japanese people and all the world to see”, he said.
The announcement comes weeks after China established an air defense identification zone (ADIZ) over a swathe of the East China Sea, including islands controlled by Japan.
It says all aircraft transiting the zone must obey certain rules, such as filing flight plans, or face “measures”.
Japan, US and South Korea – which claims a rock that lies within China’s declared zone – have strongly criticised the move, with the US calling it a unilateral attempt to change the status quo in the region.
China, meanwhile, says it is “closely watching Japan’s security strategy and policy direction”.
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