The year-on-year fall in weapons transfers, which excludes small-arms sales, comes after six years of continuous growth.
"It is too early to say whether we are seeing the start of a new declining trend in arms transfers or just a blip," said SIPRI researcher Mark Bromley.
Chinese arms imports from Russia fell 62 percent, SIPRI said. The cause was a surge of purchases around the turn of the century, meaning less need for replacement weapons now, but also more domestic manufacture.
"2007 finally shows that imports to China are slowing," said Paul Holtom, researcher at SIPRI, an independent international research body specialising on issues such as arms control.
Russian concern over transferring technology which could then be copied and used to move in on Russia's share of other markets could also be a factor, Holtom added.
China was the biggest importer of weapons in the period between 2003 and 2007, SIPRI said, accounting for 12 percent of the total.
It was followed by India, the United Arab Emirates, Greece and South Korea.
The biggest arms suppliers over the same period were the United States, with a 31 percent share, Russia, Germany, France and Britain.
While deliveries slowed, SIPRI said that orders remained strong and there are few signs the industry faces leaner times.
"Although China may be dropping off, a number of other major recipients look as if they are going to be heading up the charts," Holtom said, mentioning Saudi Arabia and Taiwan as countries which could soon place large orders.
While the arms trade may make for good business, it attracts strong criticism from many quarters.
SIPRI said that weapons were still ending up being used in conflict regions, such as Darfur in Sudan, in contravention of U.N. resolutions.
Sudan, where rebel groups are fighting the government in a war that has killed 200,000 people and forced 2.5 million to flee their homes, received most of its weapons between 2003 and 2007 from Russia. Much of the rest came from China.
SIPRI said some aircraft imported from these countries were used in Darfur.
"As the world focuses on areas of conflict and tension in Africa, the Middle East and South America, the SIPRI data throw an unflattering light on the lack of restraint being shown by both arms exporters to those regions and arms importers within them, "said SIPRI Arms Transfers Project Leader Siemon Wezeman.
A report this month from the U.N. human rights office and the U.N.-African Union mission in Darfur said Sudanese forces had targeted civilians in air and ground attacks on villages in Darfur this year.