Mr Wallace has told The Times during a visit to Japan that regardless of China’s claim to most of the South China Sea, the fleet – led by the new aircraft carrier the Queen Elizabeth – will sail on any route defined as legitimate under international law.
Despite growing Chinese military assertiveness in the region, Mr Wallace said Britain had a “duty” to insist on freedom of navigation in international waters.
He told the paper: “It’s no secret that China shadows and challenges ships transiting international waters on very legitimate routes. We will respect China and we hope that China respects us … we will sail where international law allows.”
After passing through the South China Sea in August, the British fleet will take part in exercises in the Philippines Sea with Australia, France, Japan, New Zealand, South Korea and the US.
Mr Wallace declined to say whether the fleet would breach the 12 mile zone around military bases China has built on disputed rocks and atolls in the South China Sea.
China has built a series of bases on the likes of the Paracel and Spratly Island reefs, which neighbours say are in international waters.
US warships and aircraft have passed close to the bases in the past, provoking warnings from Chinese vessels and angry responses from Beijing.
Mr Wallace also told The Times the West must work to avoid a Cold War in the region at a time when the world was in an “anxious” state, but that he felt conflict was still only a remote possibility.
“The world is a more anxious place, and as a result more on edge,” he said.
“There is definitely a danger that that anxiousness tips into more aggressive measures, but I think we are still some way off a military conflict in Asia.”
Speaking of the UK's relationship with Japan he said: "The UK’s defence relationship with Japan is the closest it has been in the last century.
"Following exercises with the Japan Maritime Self Defence Force in the Gulf of Aden and in the waters off Japan, the upcoming visit of the UK-led Carrier Strike Group to five ports across the country is a clear demonstration of our commitment to maintaining regional security and upholding the rules-based international order with Japan."
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