The number of people prosecuted for spying for Beijing has risen sharply, with retired and serving members of Taiwan's military the main targets of Chinese infiltration efforts, official figures show.
China claims Taiwan as part of its territory and has threatened to use force to bring it under its control.
Taiwan says China also uses "grey zone" tactics, including espionage, cyberattacks and disinformation, to weaken its defences.
Lai said there would be a review and an amendment to the law "to reinstate the military trial system", he told reporters after a national security meeting.
"Military judges will return to the front line," Lai said.
He said military judges would work "alongside prosecutorial and judicial agencies to handle criminal cases involving active-duty military personnel accused of treason, aiding the enemy, leaking classified information, dereliction of duty, insubordination, and other military offences".
Taiwan's intelligence agency previously said that 64 people were prosecuted for Chinese espionage in 2024, compared with 48 in 2023, and 10 in 2022.
Retired and serving members of the military were the main targets of China's infiltration efforts, Taiwan's National Security Bureau said.
Taiwan disbanded the military court system after the death of a young corporal in 2013.
Hung Chung-chiu died of heatstroke on July 4, 2013 just three days before the end of his compulsory year-long military service.
The changes proposed by Lai would apply to crimes committed by serving members of the military during peacetime.
They would have to be approved by the opposition-controlled parliament, Ryan Yen-Hsuan Chen, a lawyer and executive committee member of the Judicial Reform Foundation, told AFP.
- 'Treasonous organisations'-
Previous concerns about the military trial system included the lack of independence of judges and prosecutors, and transparency of the judicial process, the National Human Rights Museum said on its website.
Former lawmaker Hung Tzu-yung, who is the sister of the late conscript, expressed concern about the potential for abuse.
"The Code of Military Trial was revised to end the harmful influence of military trials during the authoritarian period," she said.
"Now that President Lai wants to conditionally restart (military trials) against 'foreign hostile forces', the supporting measures must be sufficient."
Lai cited cases of Taiwanese forming "treasonous organisations for China to build armed forces" on the island, as he defended the need for reinstating military judges and other measures to combat Chinese infiltration.
"China has utilised democratic Taiwan's freedom and diverse openness to absorb gangsters, media personnel, commentators, political parties, and even active and retired military and police personnel to carry out activities such as division, destruction, and subversion within us," Lai said.
"We have no choice but to take more proactive actions."
Both sides of the Taiwan Strait have been spying on each other for decades.
But analysts have warned that espionage is a bigger problem for Taiwan, which faces the existential threat of a Chinese invasion.
In recent years, China has ramped up the deployment of fighter jets and warships around the island, and sought to erase Taiwan from the international stage by poaching its diplomatic allies and blocking it from global forums.
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