The present Internet is currently run by Internet Protocol version 4, which is limited by the numbers of Internet addresses that can be created and lacks advanced security and high-tech functions, it said.
The new protocol can work at speeds of between 2.5 gigabytes to 10 gigabytes of information per second, 100 times faster than current Internet speeds, according to the report.
Researchers in the United States, Japan and South Korea are also building IPv6 technologies, which are expected to gain "significant global traction" by 2010, it said.
According to IPv6 information posted on the website of tech giant Microsoft, IPv6 and IPv4 will be used simultaneously over the coming years as Internet operators and home computers gradually take on the new technology.
IPv6 is expected to be able to handle an infinite number of Internet addresses, offer better security and be more compatible with mobile phones and handheld computing devices, it said.
Chinese researchers received government approval to research and establish the new Internet protocol in 2003 with the aim of helping domestic high tech companies build competitive hardware for the next generation Internet, the China Daily said.
Currently Internet routers and other equipment for the IPv4 system are chiefly made by American companies such as Cisco Systems and Juniper Networks, the paper said.
Five Chinese telecom operators, including China Telecom and China Mobile, are currently building IPv6 networks, with some of the networks expected to begin trial runs by the end of the year.
Chinese research institutes and manufacturers are also working to standardize and commercialize IPv6 applications and hardware with an eye to make Chinese tech companies more competitive internationally, the paper said.