China has announced a series of moves against the US in retaliation for a proposed weapons sale to Taiwan worth $6.4bn (£4bn).
Beijing said it would suspend military exchanges with the US, impose sanctions on companies selling arms, and review co-operation on major issues.
Ties are already strained by rows over trade and internet censorship.
Taiwan's president welcomed the sale, saying it would make his country "more confident and secure".
Beijing has hundreds of missiles pointed at the island and has threatened to use force to bring it under its control if Taiwan moved towards formal independence.
Taiwan and China have been ruled by separate governments since the end of a civil war in 1949.
Strained relations
The BBC's Damian Grammaticas in Beijing says China's latest moves are what the US would have expected, as the US view is that military exchanges are of limited use.
China's Xinhua state news agency quoted the defence ministry as saying: "Considering the severe harm and odious effect of US arms sales to Taiwan, the Chinese side has decided to suspend planned mutual military visits."
"We strongly demand that the US respect the Chinese side's interests", it added, calling for the sale to be stopped.
The foreign ministry, meanwhile, said it would impose sanctions on US companies selling weapons to Taiwan, and that co-operation on major international issues would be affected.
Our correspondent says it is not clear what impact such sanctions might have.
Xinhua also said the US defence attache had been summoned.
Defence ties between the two countries have been difficult for several years because of differences over Taiwan, but the two countries' leaders pledged to improve them in 2009.
'More confident'
The moves came after Mr He said the arms deal would have "repercussions that neither side wishes to see".
"The United States' announcement of the planned weapons sales to Taiwan will have a seriously negative impact on many important areas of exchanges and co-operation between the two countries," Mr He said in a statement published on the foreign ministry website.
Earlier China summoned US Ambassador Jon Huntsman to give a warning about the consequences of the deal and to urge its immediate cancellation.
Taiwan, meanwhile, welcomed the US move.
"It will let Taiwan feel more confident and secure so we can have more interactions with China," the Central News Agency quoted President Ma Ying-jeou as saying.
The Pentagon earlier notified the US Congress of the proposed arms sale, which forms part of a package first pledged by the Bush administration.
Friday's notification to Congress by the Defense Security Co-operation Agency (DSCA) was required by law. It does not mean the sale has been concluded.
US lawmakers have 30 days to comment on the proposed sale, Associated Press reported. If there are no objections, it would proceed.
The arms package includes 114 Patriot missiles, 60 Black Hawk helicopters and communications equipment for Taiwan's F-16 fleet, the agency said in a statement.
It does not include F-16 fighter jets, which Taiwan's military has been seeking.
Our correspondent says the deal has been in the pipeline for a long time and is nearing its conclusion, but China does want to stop it.
Beijing has previously warned the US not to go ahead with arms sales to Taiwan.
Last week US Secretary of State Hillary Clinton angered Beijing with a call to China to investigate cyber attacks on search giant Google, after the company said email accounts of human rights activists had been hacked.
The DSCA said the proposed sale would support Taiwan's "continuing efforts to modernise its armed forces and enhance its defensive capability."
It added: "The proposed sale will help improve the security of the recipient and assist in maintaining political stability, military balance, and economic progress in the region."
The US is the leading arms supplier to Taiwan, despite switching diplomatic recognition from Taipei to Beijing in 1979.
Washington regards it as an obligation to provide Taiwan with defensive arms.
