"The dividend of growth in Asia must not be wasted on military expansion," Mr Abe said.
His comments are thought to refer to China, which is involved in territorial disputes with its neighbours.
Speaking earlier, he compared relations with China to those between the UK and Germany on the eve of World War One.
"Japan has sworn an oath never again to wage a war. We will continue to be wishing for the world to be at peace," Mr Abe said in his speech, according to Reuters.
Mr Abe said that like Britain and Germany in 1914, Japan and China were inter-dependent economies, trading partners with huge mutual interests.
But he added that he saw the 10% per annum increase in China's defence budget as a provocation.
Asked by the BBC whether he had a plan to reduce tensions, Mr Abe said this would not happen while China pursued its military build-up.
China recently established an Air Defence Identification Zone (ADIZ) that covers East China Sea islands claimed and controlled by Japan, and a rock claimed by South Korea.
The US, Japan and South Korea have rejected China's zone, and flown undeclared military aircraft through it. The US has called the move a unilateral attempt to change the status quo in the region.
"We must lay down rules that promote actions based on the international law of the sea," Mr Abe said on Wednesday.
Sino-Japanese relations have also been strained by Mr Abe's visit to the Yasukuni shrine that honours Japan's war dead, including some convicted war criminals. The visit was condemned by South Korea and China.
Mr Abe defended the visit, telling his audience in Davos it was "natural" but that he no intention whatsoever to hurt the feelings of people in China and those in Korea".
source: BBC
