Tensions have escalated sharply in recent years as China has built islands on reefs and islets in the Spratlys archipelago – another strategically important location – that are capable of supporting military operations.
The United States has reacted to that build-up by sailing warships close to the new islands, and sending warplanes over them, deeply angering China.
A UN-backed tribunal ruled in July that China's claims to most of the sea had no legal basis and its construction of artificial islands in the disputed waters was illegal.
But Beijing vowed to ignore the ruling.
China took control of Scarborough shoal in 2012 after a standoff with the Philippine Navy, and has since deployed large fishing fleets while blocking Filipino fishermen.
Expanding that presence with a military outpost is vital to achieving China's ambitions of controlling the sea, according to security analysts.
US officials fear a Chinese military airfield at the shoal would enable Beijing to enforce a threatened air defence identification zone in the sea.
An outpost at the shoal would also put Chinese fighter jets and missiles within easy striking distance of US forces stationed in the Philippines.
US President Barack Obama reportedly directly warned his Chinese counterpart, Xi Jinping, during a meeting in March not to push ahead with any artificial island building there.
Photo courtesy Philippine Department of Defense
The United States, which is a treaty ally of the Philippines, has repeatedly said it does not want to fight a war over the shoal.
But military skirmishes cannot be ruled out if China does start to build an island, according to security analysts.
"We could witness a physical confrontation between Chinese Coast Guard and Filipino vessels backed up by the US Navy," Carl Thayer, an emeritus professor at Australia's University of New South Wales, told AFP.
An Obama aide on Wednesday played down the significance of the Philippine photos, telling reporters the United States had not detected any unusual activity at Scarborough Shoal.
Philippine President Rodrigo Duterte had said he did not want to anger China by highlighting the territorial row at the summit of regional leaders in Laos this week.
But the release of the photos came just a few hours before Duterte and other leaders from the 10-member Association of Southeast Asian Nations met China's Li, in what his spokesman said was a deliberate move.
The Philippines and Singapore, which this year is ASEAN's lead negotiator with China, raised the dispute during the meeting.
"What was underlined... was the importance of the rule of law and adhering to international bodies," Duterte's spokesman, Martin Andanar, told reporters in Vientiane.
Japanese Prime Minister Shinzo Abe also called on China to abide by the tribunal's ruling, emphasising in his meeting with ASEAN leaders that the verdict was legally binding.
Obama is also in Laos for the regional meetings, which will conclude on Thursday with an East Asia summit.
But the US president cancelled his planned meeting with Duterte, during which the sea issue was to be discussed, after the volatile Philippine president called him a "son of a whore." – Rappler.com