China's securities regulator has approved the launch of five new mutual funds, showing the government's confidence in the market despite widespread concerns of a stock market bubble.

The new funds were approved by the China Securities Regulatory Commission (CSRC) after a two-month halt amid fears of runaway investment and excessive liquidity.

Analysts said the move will relieve market concerns about over-evaluation of the A-share market and boost investors' confidence.

The CSRC has not given the exact date of the launch. A further 20 funds await approval from the regulator.

Buoyed by the news, the benchmark Composite Index on the Shanghai Stock Exchange closed 1.51 percent higher at 2,716.18 points on Wednesday.

Talk of a bubble has been rife in the Chinese stock market, after the Shanghai Composite Index jumped about 130 percent last year and continued its bull run at the beginning of this year.

Fund managers cashed in after major indices slumped last week, raising concerns about an inadequate capital supply.

Insiders say the new funds will inject another 30 billion yuan into the market, saying investors are expected to invest more rationally as they become aware of the risks.

The launch of closed-end funds is also under discussion to help stabilize the market by ensuring long-term capital inflows.