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The 701 Institute faced a dilemma during the late 50s and early 60s as warships built at northern shipyards would have been difficult to pass thought the ROCN naval blockade of the Taiwan Strait. However, the South China Sea Fleet was in urgent need of new warships to replace losses accrued during combat, fishery patrol, and anti-piracy operations. It would have been logical to build the new craft in shipyards south of the Straits, but smaller yards such as Hunan were not capable of building warships such as the Type 037. As a solution, components were machined at the northern Dalian shipyard and shipped by train to the South for assembly.

The first Type 037 began assembly at Guangzhou’s Huangpu shipyard in August 1962 with a pennant number of 278. It was launched on December 17, 1963, and began sea trials in March 1964 in the vicinity of Hainan Island. By November 16, 1963, the prototype had completed dozens of important trial runs and was handed over to the fleet. To accelerate their induction date, in January 1966 the South China Sea Fleet organized a simultaneous operational trial for two ships: 278 for design check-out and 279 for construction quality of the shipyard. Both craft completed trials with good results and in 1966 batch production of the Type 037 began simultaneously at two sites in Shanghai and Guangzhou respectively. Type 037 pennant 279 began assembly at Huangpu on March 20, 1964, and was launched July 28, 1965.

During the period of 1974 to 1982, there were four shipyards producing two variants of the basic Type 037 design. The southern variant with air conditioning was produced at Guangzhou and Chongqing, while the northern variant with heated crew compartments was built at Shanghai and Qingdao. The first Qingdao Type 037 was pennant 619 (production number 4, started June 12, 1977) and first Chongqing Type 037 was 649 (production number 19, started March 11, 1978). Upon completion, the sixth Type 037 from Qingdao was converted to a HQ-61 SAM test ship with its forward 57mm cannon removed. A live fire test was conducted in November of the same year at PLAN Base 23.