“There is a real risk of miscalculation and mishap,” said Mr Lee in one of the starkest statements by an Asian leader about the chances of a conflict.

In his first important address since becoming prime minister 10 days ago, Mr Lee also sought to mend fences with Beijing after he paid a “private and unofficial” visit to Taiwan last month that angered the Chinese government. He expressed “regret” that the visit had caused strains with China, but defended the trip as necessary to gain first-hand knowledge about the thinking of Taiwanese leaders “so I can make the right decision for Singapore in a crisis.

“I have become more worried about the cross-straits situation after my visit,” he said, while confirming Singapore's support for a “one China” policy that opposes the independence of Taiwan.

“If Taiwan goes for independence, Singapore will not recognise it. In fact, no Asian country will recognise it. China will fight. Win or lose, Taiwan will be devastated,” he added. “Unfortunately, I only met very few Taiwanese leaders who understood this.” Taiwan was the only foreign policy issue to be discussed at length in Mr Lee's first annual National Day Rally speech, which sets the city-state's political agenda for the next year, following his inauguration as only Singapore's third prime minister since independence in 1965.

Attention has focused on the speech since it was expected to set the tone and policy priorities for the new administration of Mr Lee, who is seen as an aloof and stern figure by many Singaporeans. Mr Lee has also had to deal with accusations of nepotism as he is the son of Lee Kuan Yew, the founding father of modern Singapore.

In a speech that lasted more than three hours, Mr Lee said he wanted to promote a more open and diverse society by easing restrictions on free speech. Public speakers would no longer be required to obtain police permits to hold meetings inside buildings unless “they touch on sensitive issues such as race and religion”.

But he told the nation that it must expect more job and wage cuts as Singapore restructures to achieve competitiveness against low-cost countries such as China and India.

Tougher economic conditions have been cited as one of the main reasons why Singapore is suffering a sharp decline in its birth rate, which threatens to strain limited government social services owing to a rapidly greying population.

Mr Lee promised incentives to families that have more children, including increased tax and medical benefits and an extension in maternity leave.

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