Satellite images taken on 14 February and published by Fox News appear to show two batteries of eight missile launchers and a radar system on Woody or Yongxing Island in the Paracels.
Taiwan, which also claims the island, confirmed the deployment.
But China's Foreign Minister Wang Yi said the reports had been invented by the Western media.
Speaking at a news conference in Beijing alongside his Australian counterpart Julie Bishop, Mr Wang said the media should focus instead on lighthouses built in the South China Sea which "have been very useful in assuring the safety of passing ships". Read more on bbc.