Animal protection activists on Friday hounded a Chinese city which holds an annual dog meat festival, a campaigner said, as state-run media reported that protests had decreased demand for the product.

The festival, scheduled to take place on Saturday in Yulin, in the southern region of Guangxi, sees dogs packed into cages before being killed and cooked, but has met with increasing opposition from activists, highlighting China's small but growing animal rights movement.

Yulin's government has insisted that it will not step in because eating dog is not illegal, but suggested restaurants serving such dishes cover the character "dog" on signs to avoid attention from opponents, the official Xinhua news agency said.

Members of 12 animal protection groups from across China are in the city to monitor the festival, an activist told AFP, asking not to be named because to the sensitivity of the issue.

"I know that the government doesn't have the ability to ban the eating of dogs," he said, adding: "They banned officials from eating meat, strictly speaking the ban is illegal, but it's a sign of their dedication."

Photographs from past festivals showing dogs packed into cages and locals feasting on their meat from steaming pots have circulated on Chinese social networking websites, leading thousands to condemn the event as cruel.

A dozen Buddhist dog lovers performed a religious ceremony on Wednesday at a dog meat market, the state-run China Daily said, adding that others carried posters calling on people to stop eating the meat, and handed out pamphlets.

Dog meat vendors told the newspaper that protests had taken a bite out of sales.

"My grandfather, my father and I all sell dog meat. I could sell dozens of dogs a day last year during this time, but I only sold a few this year," it quoted Zhou Jian, 55, as saying.

In recent years Chinese activists have staged a series of dramatic rescues of dogs and cats from trucks transporting them to restaurants.

Animal lovers rescued around 500 dogs in 2011 after a truck carrying them was forced to stop on a highway in eastern Beijing by a motorist who swerved his car in front of the vehicle and then used his microblog to alert animal-rights activists, reports said.

China currently does not have any laws to protect non-endangered animals.