"I strongly urge the Japanese side to release the skipper immediately and unconditionally," Wen, who is here for the annual UN General Assembly session, said addressing a meeting of representatives of Chinese nationals and Chinese-Americans.
"If Japan clings to its mistake, China will take further actions, and the Japanese side shall bear all the consequences that arise," he was quoted as saying by the official Xinhua news agency.
His comments came as Japan extended till September 29 the custody of the captain of the fishing trawler, who was detained off the Diaoyu islands in East China Sea on September 7 by Japanese Coast Guard (JCG) vessels for ramming his boat into them causing damage.
Wen demanded Japan "swiftly correct its mistakes" to bring the bilateral ties back to the track, a move that will be not only conducive to the bilateral ties, but also to the world's peace, cooperation and development.
The Chinese Premier, who arrived here yesterday on a three-day visit, said the Sino-Japan relations had witnessed improvement and development, thanks to years of efforts by both sides, but the good momentum had now suffered severe damage and Japan was solely responsible for it.
He urged the Japanese government to swiftly correct its "mistake" so as to bring bilateral ties back on track, saying this conforms to not only the fundamental interests of both peoples, but also the world trend of peace and cooperation.
Wen said it was downright illegal and unjustifiable for Japan to detain the Chinese fishermen and trawler and refuse to release the captain of the boat, asserting that the Diaoyu islands are China's "sacred territory".
Japan's action has inflicted great harm on the Chinese skipper and his family and enraged all Chinese across the world.
China was forced to take necessary counter-measures as the Japanese side turned a deaf ear to the repeated protests from the Chinese side, Wen said.
In China, Foreign Ministry spokeswoman Jiang Yu said yesterday that the incident had severely damaged bilateral relations.
"Japan holds the key to solving this problem. The Japanese side should correctly understand the situation and return the captain immediately and unconditionally," Jiang said.