China has cancelled all military exchanges with the US in a sign of its anger at the proposed sale of advanced missiles and helicopters to Taiwan.
Beijing has also imposed sanctions on the companies selling the arms.
“We made the decision out of considerations on the severe harm of the US arms sales to Taiwan,” said Defence Ministry spokesman Huang Xueping in a statement.
“The US plan will definitely seriously disturb the relations between the two countries.”
China condemned the proposed sale of advanced missiles and helicopters to Taiwan and warned the US that it will have a "serious negative impact" on ties between the two countries.
Vice foreign minister He Yafei said the US arms deal with Taiwan would lead to an "aftermath both sides would not prefer" and called on Washington to reverse its "erroneous" decision.
Beijing regards Taiwan as a renegade province that is still part of its territory.
Mr He said China was "strongly indignant" about the £4 billion package of weapons, which includes 114 Patriot anti-missile missiles, 60 Blackhawk helicopters and two minesweepers, which was submitted to the US Congress for approval on Friday.
"The US plan will definitely undermine China-US relations and bring about a serious negative impact on exchanges and co-operation in major areas between the two countries," said He in a statement.
Under a 1979 Act of Congress, Washington is legally obliged to help Taiwan defend itself.
The row is the latest sign of the increasingly fraught relationship between Beijing and Washington.
Earlier this month, the two powers clashed over internet freedom, following Google's threat to shut down its Chinese operation after the company said it had been the victim of cyber hacking.
President Obama's decision later this year to meet the Dalai Lama, who China regards as a dangerous separatist, has also angered Beijing. Trade ties remain strained too, with the US continuing to insist that the Chinese currency the Yuan is undervalued.
Now, the arms sale raises the prospect of China curtailing military links with the US. Beijing could also retaliate by blocking any move to impose further UN sanctions on Iran's nuclear programme.
On Friday, US Secretary of State Hillary Clinton warned China that a nuclear-armed Iran would destabilise the Middle East and so threaten the supply of oil China needs to power its economy.
Taiwan has been ruled by its own government since the Chinese Communist Party took control of mainland China in 1949. Taipei says it needs the latest US military technology to counter the threat posed by the estimated 1000-1500 missiles aimed at the island by China.
While relations between Taiwan and China have warmed over recent years, with increasingly strong economic links between the two, Beijing continues to demand that Taiwan accept unification with the mainland.
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