President Hu Jintao on Friday pledged more aid to Afghanistan as the two countries upgraded their relationship to a strategic and cooperative partnership.

Hu also met visiting Iranian President Mahmoud Ahmadinejad.

"China is a trustworthy neighbor and friend of Afghanistan," Hu told his visiting Afghan counterpart Hamid Karzai, who was also in China for the Shanghai Cooperation Organization summit.

"At present, Afghanistan has entered a critical transition period," he said.

China committed to a $23.8 million grant to Afghanistan this year in a joint declaration on establishing a strategic and cooperative partnership between the two countries on Friday.

Analysts said the move will help with Afghanistan's reconstruction and promote regional peace and development after the departure of most foreign troops by the end of 2014.

Karzai said Afghanistan attaches great importance to China's role in its reconstruction process.

Karzai expressed hope that Afghanistan will realize peace, security, stability and development at an early date with the help of the international community.

Hu suggested the two sides expand cooperation in areas including economy and trade, contracted projects, resource and energy development, agriculture and infrastructure.

"The Chinese government will continue to encourage capable Chinese companies to invest in Afghanistan," Hu said.

In December, China's National Petroleum Corp signed a deal allowing it to become the first foreign company to exploit Afghanistan's oil and natural gas reserves, AP reported.

Three years earlier, the China Metallurgical Construction Co signed a contract to develop the Aynak copper mine in Logar province. AP said Beijing's $3.5 billion stake in the mine is the largest foreign investment in Afghanistan.

Cutting short the visit to China, Karzai returned to Kabul on Friday following reports of 18 civilian deaths in a NATO airstrike in Logar province and a trio of suicide bombers killing 22 people in the busy marketplace of Kandahar city on Wednesday.

"This is unacceptable. It cannot be tolerated," said Karzai, criticizing NATO for not being able to provide an explanation for showing vans piled with the bodies of women and children to reporters.

Karzai's condemnation of the strike and NATO's treatment of it serves as a reminder of the ongoing tension between Afghanistan and its Western allies as US Defense Secretary Leon Panetta visits, AP said.

Foreign Ministry spokesman Liu Weimin told a news conference on Friday that the Shanghai Cooperation Organization will play an active role in the process of peaceful reconstruction of Afghanistan.

Afghanistan became an observer state of the SCO on Thursday.

China also asked Iran to be "flexible and pragmatic" on nuclear talks, a move analysts say shows that Beijing wants the issue to be solved peacefully.

"China hopes Iran weigh up the situation, take a flexible and pragmatic approach and have serious and tangible talks," President Hu told visiting Iranian President Mahmoud Ahmadinejad on Friday.

Hu's remarks were read as telling Iran that Teheran will not be allowed to develop nuclear weapon given the changing global situation and mounting external pressure, said Yin Gang, an expert on Middle East studies with the Chinese Academy of Social Sciences.

Yin said Beijing's stance is consistent: Iran has the right to develop nuclear facilities for civil use but must not be allowed to develop nuclear weapons.

Iran renewed talks with the International Atomic Energy Agency and will launch the new round of talks with six countries: the United States, Russia, China, the United Kingdom, France and Germany.

Talks with the six powers were revived in Istanbul in April and they met again in Baghdad in May. They will meet in Moscow on June 18 and 19.

Beijing expects Teheran to enhance cooperation with the IAEA to ensure the Iran nuclear issue runs toward settlement through dialogue and negotiations, Hu said.

On Friday, the IAEA's chief inspector Herman Nackaerts and deputy director-general Rafael Grossi were due to meet Iran's ambassador to the agency in Vienna.

Ahmadinejad said Iran expects the nuclear issue to be settled peacefully through dialogue.

Teheran would like to keep in contact with all parties involved, he said.

The Iranian leader attended the annual summit of the SCO, of which Iran is an observer.