The widening fallout from an increasingly volatile territorial dispute between China and Japan prompted a Japanese company to halt work at plants in China on Monday, and the United States to urge the two sides to avoid letting the situation spiral out of control.

The electronics company Panasonic said Monday that it was suspending operations at three plants in China after two of them were damaged amid violent anti-Japanese protests set off by the clash between Beijing and Tokyo over a group of small islands in the East China Sea.

Japan calls the islands Senkaku; China calls them Diaoyu.

The United States, a key military ally of Japan, has called on the two sides to find a peaceful resolution to the disagreement, which is generating more and more unease in the region and starting to hurt economic links between the world's second and third largest economies.

"It's in everybody's interest for Japan and China to maintain good relations and to find a way to avoid further escalation," U.S. Defense Secretary Leon Panetta said Monday at a joint new conference in Tokyo with his Japanese counterpart, Satoshi Morimoto.

Despite describing the U.S.-Japan alliance as the "bedrock of peace and stability" in the Asia-Pacific region, Panetta reiterated that Washington doesn't take a position on competing sovereignty claims. He did, however, express concern about the demonstrations in China.

Parts of Panasonic's facilities in Qingdao, Shandong Province, and Suzhou, Jiangsu Province, were damaged by anti-Japanese protestors on Saturday, the company said. It is halting work at the factories until Tuesday, it said, as well as at a plant in Zhuhai, Guangdong Province, where some employees have staged a strike over the island issue.

Unrest took place in dozens of other cities in China over the weekend. Thousands of protesters hurled bottles and eggs outside the Japanese Embassy in Beijing on Saturday, expressing anger over Tokyo's announcement last week that it had acquired several of the disputed islands from a Japanese family to bring them under public ownership.

China declared the purchase to be "illegal" and sent six surveillance vessels to carry out patrols on Friday around the remote islands in an effort to underscore its claim to sovereignty.

The ships briefly entered Japanese territorial waters despite warnings not to do so, the Japanese Coast Guard said. The islands, situated in the East China Sea between Okinawa and Taiwan, are under Japanese control, but China claims they have been a part of its territory "since ancient times."