The event -- featuring 12,000 service personnel and about 700 aircraft and pieces of ground equipment -- marked the 90th anniversary of the People's Liberation Army (PLA), now the world's largest military.
It was the first time Xi has observed a parade of this size staged in the field, according to the defence ministry.
Since coming to power in 2012, the president has trumpeted the need to build a stronger combat-ready military, while leading efforts to centralise the Communist Party's control over it.
"The world is not all at peace. Peace must be safeguarded," Xi, wearing a camouflage military uniform, said in a speech at the expansive Zhurihe training base in the Inner Mongolia Autonomous Region.
"Today we are closer than ever before to the goal of the great rejuvenation of the Chinese nation, and -- more than any other time in history -- we need to build a strong people's military," he said.
"I believe that our heroic army has the confidence and capability to defeat all invading enemies."
Xi also ordered the PLA to "unswervingly stick to... the party's absolute leadership", saying the military should "march to wherever the party is pointing".
Defence ministry spokesman Ren Guoqiang said in a statement that the parade was intended to create a "good atmosphere" before a crucial party congress later this year, at which Xi is expected to further consolidate his grip on power.
At Zhurihe, a base extending more than 1,000 square kilometres (386 square miles), rows upon rows of soldiers marched in perfect unison and helicopters flew overhead in a "90" formation.
The president stood in an open-top jeep that drove past ranks of troops for his inspection.
"Comrades, thanks for your hard work!" he said, to which the troops responded: "Serve the people!"
China announced in March it would raise its defence spending by around seven percent this year, the slowest annual percentage increase since 1991.
Beijing is engaged in a decades-long build-up and modernisation of its once-backward armed forces, as it seeks military clout commensurate with its economic might and increasingly asserts its disputed territorial claims in Asian waters.
Xi announced in 2015 that he would cut China's military by 300,000 -- though at its reduced size of around two million, it will still remain the world's largest military.
The People's Liberation Army (PLA) also encompasses the navy and air force.
The PLA, originally called the Chinese Workers' and Peasants' Red Army, was founded in 1927 when Communist soldiers seized the southern town of Nanchang from Nationalist Party ("Kuomintang") armies in what is known today as the Nanchang uprising.
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