"We demand Japan return the Chinese captain unconditionally and immediately. If Japan continues to take the wrong course, China will take strong counter-measures and Japan will have to take all the consequences", Chinese foreign ministry statement said.
China had warned it would be taking "strong measures" against Japan after a court in Okinawa, southern Japan, said the sailor could be held for a further 10 days.
China has closed top-level exchanges with Japan in a row over the detention of a Chinese ship captain following a collision near disputed islands. The disputed islands are known as Senkaku in Japan and Diaoyu in China.
Chinese state media said ministerial and provincial-level contacts had been suspended, including talks on aviation and coal.
Earlier, a Japanese court extended the detention of the captain, held after the collision in the East China Sea.
A foreign ministry statement read out on Chinese state television said the decision had "seriously damaged Sino-Japan bilateral exchanges".
It read: "[Foreign ministry spokesman] Ma Zhaoxu said China has repeated many times that any judicial measures Japan has taken against the Chinese captain are illegal and invalid.
On Friday, small protests against Japan took place in several Chinese cities, marking the anniversary of the 1931 Mukden incident, that led to Japan's occupation of north-east China.
Demonstrators held banners demanding that Japan "get out" of the islands and release the Chinese captain from detention.