RANAI Indonesia (Reuters) - The word "sleepy" could have been invented for Ranai, the largest town in Indonesia's remote and sparsely populated Natuna archipelago.

It has few cars and only two sets of traffic lights. The cloud-wreathed mountain looming over it resembles a slumbering volcano. Nearby beaches lie pristine and empty, waiting for tourists. 

From Ranai, it takes an imaginative leap to see Natuna - a scattering of 157 mostly uninhabited islands off the northwest coast of Borneo - as a future flashpoint in the escalating dispute over ownership of the South China Sea, one of the world's busiest waterways.

But that's precisely what many people here fear.

They know Natuna is quite a prize. Its fish-rich waters are routinely plundered by foreign trawlers. Lying just inside its 200-nautical-mile exclusive economic zone is the East Natuna gas field, one of the world's largest untapped reserves.

And any quarrel over Natuna would also upset a delicate strategic balance, undermining Indonesia's role as a self-appointed honest broker in the myriad territorial disputes between its Southeast Asian neighbors and regional giant China.

Jakarta's foreign ministry insists there is no problem with China over the status of Natuna, but the Indonesian military has in recent months struck a more assertive tone.

In April, Indonesian armed forces chief Moeldoko accused China of including parts of Natuna within its so-called "Nine-Dash Line," the vague boundary used on Chinese maps to lay claim to about 90 percent of the South China Sea.


EARLY WARNING SYSTEM 

With maritime tensions rising between China and the Philippines and Vietnam, Moeldoko later vowed to send more troops to Natuna "to anticipate any instability in the South China Sea and serve as an early warning system for Indonesia".

The airforce plans to upgrade Ranai's airbase to accommodate fighter jets and attack helicopters.

Officially, China and Indonesia don't contest the sovereignty of the islands: both agree they are part of Indonesia's Riau Province. Nor is Indonesia among the five countries - Malaysia, the Philippines, Vietnam, Taiwan and Brunei - challenging Beijing's expansive claims in the South China Sea.

This has allowed Jakarta to play a neutral role and seek to mediate in an increasingly bitter and volatile dispute. 

But Natuna's bit-part in this regional drama reflects "growing concern within Indonesia about China's actions within the Nine-Dash Line," said Ian Storey, a security expert at the Institute of Southeast Asia Studies (ISEAS) in Singapore. 

Rising maritime tensions with China have induced many Southeast Asian countries to seek closer strategic ties with the United States.

Since 2010 Indonesia has unsuccessfully sought clarification through the United Nations of the legal basis for the Nine-Dash Line. Indonesia's foreign minister, Marty Natalegawa, told Reuters in April that Indonesia had "inferred" from China that the line did not cross Indonesian territory.

Locals remain unconvinced. "We're worried they'll take over this territory," Ilyas Sabli, Natuna's regent, or district chief, told Reuters, referring to the Chinese. "That's why it has become our first priority to protect this homeland."


DEFENDING OIL AND GAS

About 80,000 people live on 27 of Natuna's islands, mostly in Ranai and other places on the main island of Natuna Besar.