A US underwater drone seized by the Chinese navy in the contentious South China Sea has now been returned.

The drone was handed over some 92km north-west of Subic Bay in the Philippines, officials said.

China seized the vehicle in international waters, in one of the most serious confrontations between the powers in decades.

The US said it would continue to "fly, sail, and operate in the South China Sea" where international law allows.

"After friendly consultations between the Chinese and US sides, the handover was smoothly completed at midday," China's defence ministry said in a statement on Tuesday.

The Pentagon described the incident as inconsistent with international law and codes of conduct between navies at sea, and added that it would continue to investigate.