After the Japanese victory at the Yalu River, the Japanese Second Army commanded by General Yasukata Oku landed on the Liaotung peninsula, only some 60 miles from Port Arthur. The Japanese intention was to break through this Russian defensive position, capture the port of Dalny, and lay siege to Port Arthur.

On 24 May 1904, during a heavy thunderstorm, the Japanese Fourth Division under the command of Lieutenant General Ogawa Mataji attacked the walled town of Chinchou, just north of Nanzan hill. Despite being defended by no more than 400 men with antiquated artillery, the Fourth Division failed on two attempts to breach its gates. Two battalions from the First Division attacked independently at 05:30 on 25 May 1904, finally breaching the defenses and taking the town.

On 26 May 1904, Oku began with prolonged artillery barrage from Japanese gunboats offshore, followed by infantry assaults by all three of his divisions. The Russians, with mines, Maxim machine guns and barbed wire obstacles, inflicted heavy losses on the Japanese during repeated assaults. By 18:00, after nine attempts, the Japanese had failed to overrun the firmly entrenched Russian positions. Oku had committed all of his reserves, and both sides had used up most of their artillery ammunition.

Finding his calls for reinforcement unanswered, Colonel Tretyakov was amazed to find that the uncommitted reserve regiments were in full retreat and that his remaining ammunition reserves had been blown up under orders of General Fok. Fok, paranoid of a possible Japanese landing between his position and the safety of Port Arthur, was panicked by a flanking attack by the decimated Japanese Fourth Division along the west coast. In his rush to flee the battle, Fok had neglected to tell Tretyakov of the order to retreat, and Tretyakov thus found himself in the precarious position of being encircled, with no ammunition and no reserve force available for a counter-attack. Tretyakov had no choice but to order his troops to fall back to the second defensive line. By 19:20, the Japanese flag flew from the summit of Nanshan Hill. Tretyakov, who had fought well and who had lost only 400 men during the battle, lost 650 more men in his unsupported retreat back to the main defensive lines around Port Arthur.

Due to lack of ammunition, the Japanese could not move from Nanshan until 30 May 1904. To their amazement, they found that the Russians had made no effort to hold the strategically valuable and easily defendable port of Dalny, but had retreated all the way back to Port Arthur. Although the town had been looted by the local civilians, the harbor equipment, warehouses and railway yards were all left intact.