What has happened?
China seized the drone, known as an unmanned underwater vehicle (UUV), on Thursday off the coast of the Philippines. China has accused the US of using the device to spy on them.
US officials said the drone was taken just as the navy's USNS Bowditch, an oceanographic survey ship, was about to recover it.
Beijing said it would hand over the drone in an "appropriate manner" and that discussions were currently underway.
"China resolutely opposes these activities and demands that the US side should stop such activities," China's defence ministry spokesman Yang Yujun said on the department's website.
What has China said?
Chinese officials said the drone was picked up to ensure safe passage for other vessels.
The People's Daily, the official newspaper of the ruling Communist party, said the drone was conducting military operations in a bid to "contain" China.
The newspaper said the drone was the "tip of the iceberg" in the US military strategy in China.
"No doubt that UUV was missioned to detect submarines, it might even have followed submarines. The region is a grey zone, and if the US navy drone's could come over, the Chinese could seize it," an editorial in the newspaper read.
China said it had no intention of keeping the drone and accused Washington of hyping up the incident.
What has the US said?
The Pentagon said the drone was an "ocean glider" and was operating lawfully, collecting data about the salinity, temperature, and clarity of the water. It complained about the seizure and said on Saturday that it had struck a deal to get the drone back.
President-elect Donald Trump, who has vowed to take a more aggressive approach in dealing with China over its economic and military policies, jumped on the unusual seizure. He accused Beijing of stealing the equipment.
Trump took to Twitter and said:
China steals United States Navy research drone in international waters - rips it out of water and takes it to China in unprecedented act.— Donald J. Trump (@realDonaldTrump) December 17, 2016
We should tell China that we don't want the drone they stole back.- let them keep it!— Donald J. Trump (@realDonaldTrump) December 18, 2016
Does China have cause to be suspicious?
Chinese state media alleged the drone was part of US surveillance efforts in the disputed sea. They called the USNS Bowditch, "a serial offender" when it came to spying on China.
The China Daily said the same ship was involved in reconnaissance efforts and has been surveying China's coastal waters since 2002.
"Oceanic data is crucial for ship formations, submarine routes and battle planning," Ma Gang, a law professor at the People's Liberation Army National Defence University wrote in The China Daily.
How will this affect US-China relations?
Shaun Rein, a Shanghai-based commentator, told CNN the drone seizure was China's response to Trump's aggressive stance.
"China is signalling it cannot be bullied while at the same time showing it does not want to risk armed conflict or death of any sailors," he said to CNN.
Bill Bishop, a Washington DC-based China expert, told The Guardian that Trump's approach towards China could have "serious and damaging ramifications."
An editorial in China's state-run Global Times newspaper concluded China's relations with the US was certainly going to deteriorate if Trump continued his social media assaults.
"The Chinese government should be fully prepared for a hardline Trump," the editorial read.