Xi made the announced while speaking at the victory parade being held in Beijing on Thursday to commemorate 70th anniversary of the victory against Japan in the World War II.
This is part of efforts by the PLA which operate with annual defence budget of $145 billion, the second highest after US to streamline its force as it launched unprecedented modernisation with new weapons and technology.
The People's Liberation Army, which was 4.5 million strong till 1980, was first resized to three million in 1985 and later to 2.3 million.
The cut of three lakh troops comes in the back drop of massive anti-corruption drive being conducted by Xi who, besides being the President, is also the chief of the ruling Communist Party of China and the head of the military.
About 40 high-ranking military officials including two former vice chairmen of the Central Military Commission are facing anti-corruption probes in an unprecedented revamping of the army.
After taking over in 2013, Xi placed more emphasis on practical training involving live firing drills and want the army to be ready to win wars as it acquired latest weaponry including long range missiles, new generation of aircraft, aircraft carriers as well as ground weapons.
The revamping of the military also comes as China is locked in a major stand off over maritime disputes in South China Sea with several East Asian countries who are backed by the US as well as in the East China Sea with Japan.
On the ground China is locked in a border dispute with India and Bhutan even though it settled border issues with the 12 other countries.
This is the first time China has held a military parade to mark the victory against Japanese aggression. It is held in the background of growing tensions with Japan over the disputed islands in the East China Sea over which China has stepped up its claims in the last three years.
Ravaging through Asia, Europe, Africa and Oceania, the Japanese war inflicted over 100 million military and civilian casualties. China suffered over 35 million casualties and the Soviet Union lost more than 27 million lives, Xi said in a nationally televised speech.
In an emotionally chocked voice, Xi said the victory of the Chinese people against Japanese forces is "the first complete victory" won by China in its resistance against foreign aggression in modern times.
"This great triumph crushed the plot of the Japanese militarists to colonise and enslave China and put an end to China's national humiliation of suffering successive defeats at the hands of foreign aggressors in modern times," Xi said.
He said this victory also re-established China as a major country in the world and won the Chinese people respect of all peace-loving people around the world.
"This great triumph opened up bright prospects for the great renewal of the Chinese nation and set our ancient country on a new journey after gaining rebirth," he said.
China has strongly criticised Japanese Prime Minister Shinzo Abe's recent efforts to change Japan's post WWII pacifist constitution, saying it may revive the old military doctrine of aggression and demanded that he should apologise for the excesses committed by Japanese troops.
Last month, Abe offered his "deep remorse" for all those who died as a result of Japan's WWII actions but avoided explicitly repeating the apologies of his predecessors.
More than 40,000 spectators, including Chinese officials, citizens and foreign guests took part in the event which was held under massive security blanket.
In a rare appearance, former Presidents Jiang Zemin, Hu Jintao and ex-Prime Minister Wen Jiabao also shared the stage along with Premier Li Keqiang and other serving top leaders.
A 2,400-member military band and chorus performed classic songs well known in the war, including the song "Safeguard the Yellow River" from the Yellow River Cantata, composed in 1939 it inspired numerous Chinese in the dark moments.
A total of 50 formations of the People's Liberation Army, including 11 foot phalanxes, 27 armament phalanxes, 10 echelon formations of aircraft and two veteran teams attended the ceremony.
The highlight of the parade was display of more than 500 pieces of China's latest weaponry as well as nearly 200 aircraft of about 20 different models.
Most of the Beijing has been shut down for past few days. The city's international airport was closed for two hours.
Image: Chinese President Xi Jinping stands in a car after he reviewed the army, during the military parade marking the 70th anniversary of the end of World War Two, in Beijing, China, September 3, 2015.
Photograph: Damir Sagolj/Reuters
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