China is halting co-operation with the US in several key areas including climate change, military talks and efforts to combat international crime, reports BBC.
The new measures follow a trip to Taiwan by a US congressional delegation led by senior Democrat Nancy Pelosi.
China, which also announced it was sanctioning Ms Pelosi and her family, views the visit as a challenge to its claims of sovereignty over Taiwan.
The self-ruled island sees itself as distinct from the mainland.
The measures were announced by China's foreign ministry on Friday. It said dialogue between US and Chinese defence officials would be cancelled, while co-operation on returning illegal immigrants, climate change, and investigating international crime would be suspended.
The two major powers have maintained cordial diplomatic ties on the need to combat climate change in recent years. At last year's climate summit in Glasgow, China vowed to work "with urgency" with the US to cut emissions.
The countries have also found rare common cause on efforts to fight the trade of illegal drugs such as fentanyl.
The decision to halt co-operation was taken because Ms Pelosi visited Taiwan "in disregard of China's strong opposition and serious representations," the Chinese ministry said in a statement.
It also accused the US delegation and Ms Pelosi - who is the highest-ranking US politician to travel to the island in 25 years - of "egregious provocations".
In a message posted on Twitter on Friday, Chinese foreign ministry spokesperson Hua Chunying criticised US foreign policy by comparing it to the police killing of George Floyd, the unarmed black American whose death in 2020 sparked global anti-racism protests.
"We cannot allow the US to take itself as 'world policeman' and treat other countries as George Floyd whom it can bully and strangle at will," she wrote.
At a news conference later on Friday afternoon, White House Press Secretary Karine Jean-Pierre said Ms Pelosi "had every right" to go to Taiwan and said China's new measures were "fundamentally irresponsible".
"We'll continue our efforts to keep open lines of communications with Beijing, while defending our interests and values," she said.
Although the US does not officially recognise Taiwan, it maintains strong relations with the island - which includes selling weapons for Taiwan to defend itself.
Ms Pelosi is currently in Japan on the final leg of an Asia tour, and said on Friday that China "will not isolate Taiwan by preventing us to travel there".
Speaking to the BBC, Taiwan's Foreign Minister Joseph Wu defended the visit which he said would "raise the profile of Taiwan and... allow the international community to understand that Taiwan is a democracy".
He also condemned the large-scale military exercises that China began around the island on Thursday in response to Ms Pelosi's visit.
Beijing is currently holding military drills in the air and seas around the island and these are expected to continue until Sunday.
More than 100 warplanes and 10 warships have taken part in the live-fire exercises, with many apparently crossing the unofficial buffer zone between China and Taiwan.
At least one ballistic missile has flown directly over the island, according to Chinese state media.
Taiwan's foreign ministry has not confirmed or denied whether that is true, but it condemned the ongoing drills as "highly provocative acts".
US Secretary of State Antony Blinken added on Friday that there was "no justification for this extreme, disproportionate and escalatory military response".
The White House summoned China's ambassador to Washington, condemning China's escalation as "irresponsible".
In a statement, National Security Council strategic communications coordinator John Kirby said the White House had made it clear that the US "is prepared for what Beijing chooses to do. We will not seek and do not want a crisis."