BEIJING - Beijing branded Washington "the biggest attacker of China's cyberspace" on Tuesday and warned of chilled military ties.
The move followed Monday's indictment by the United States of five Chinese military officers on charges of cybertheft.
The US Justice Department claimed the officers stole trade secrets from major US companies to help China's State-owned business.
In response, the Chinese Foreign Ministry said it was suspending cooperation with the US on a joint cybersecurity working group set up last year because "the US is not interested" in solving the issue through dialogue.
Washington has long accused Beijing of pursuing US companies' private information for economic gain.
But Foreign Ministry spokesman Hong Lei said, "The Chinese government and military, as well as relevant personnel, have never engaged and participated in the so-called cybertheft of trade secrets.
"What the United States should do now is withdraw its indictment," he said at a news briefing on Tuesday.
The ministry summoned US Ambassador Max Baucus on Monday night to lodge a protest.
The Ministry of National Defence warned that the accusations by the US would endanger warming military relations, describing the allegations as "groundless and (made) with ulterior motives".
Beijing also said it would prohibit use of the Windows 8 operating system in new government computers to ensure security following the shutdown of Windows XP.
Leaks by former US National Security Agency contractor Edward Snowden showed the NSA had engaged in widespread hacking of Chinese government and military entities and also companies and universities in the country.
Fan Jishe, a US studies researcher at the Chinese Academy of Social Sciences, said, "Snowden's revelations have disqualified the US from making allegations against others on cybersecurity."
He said Beijing would deliver a tit-for-tat response to any followup measures taken by Washington.
Douglas Paal, vice-president for studies at the Carnegie Endowment for International Peace, a foreign policy think tank, said the US decision appeared to be aimed largely at a domestic audience to show that the administration was not as "feckless" as it seemed.
"But actually prosecuting anyone in China is likely to prove feckless as well," he said.
"The administration's effort to address this legitimate issue is hopelessly compromised by the Snowden revelations, and I would think it would learn when to cut its losses," he said.
Li Qinggong, deputy secretary-general of the China Council for National Security Policy Studies, said the information the US released about the Chinese officers "cannot prove anything".
Zhu Zhiqun, a professor of international relations at Bucknell University in Pennsylvania, said the latest development exposed one of the biggest problems in the bilateral relationship - deep-rooted suspicion and lack of mutual trust.
The US allegations are believed to be the biggest challenge to bilateral relations since a summit between the two nations' presidents last summer in California.
The summit was intended to set a positive tone for the relationship, which Beijing termed a "new model of great power relations".
Chen Weihua in Washington and AP contributed to this story.