China has vowed to "crush" any attempts by Taiwan to seek independence, describing the island's President Chen Shui-bian as selfish and immoral.
Mr Chen wants the referendum to coincide with next year's elections
Tensions between Beijing and Taipei have been fuelled by Mr Chen's plan to hold a referendum asking China to remove its missiles targeting Taiwan.
China is worried that a vote could be seen as a move towards independence.
Mr Chen raised the stakes further on Wednesday, saying he would even deem Chinese missile tests provocative.
In an interview with the UK newspaper the Financial Times on Wednesday, he warned China that if it conducts missile tests around Taiwan, as it did in 1996, that would be seen as an attack.
Mr Chen has said he is justified in holding a referendum on China's missiles because he believes the island is under imminent attack from the mainland
But China also appeared to raise the stakes.
Li Weiyi, spokesman for China's Taiwan Affairs Office, said
at a press conference: "In the face of outrageous splittist activities, we must make
necessary preparations to resolutely crush Taiwan independence
He warned Mr Chen that he was gambling "with the immediate interests of Taiwan compatriots" in bidding for a referendum on 20 March, the date of next year's presidential elections, in an attempt to get re-elected.
"This is very immoral," he said.
Despite the fact Taiwan and China are publicly exchanging insults, they are still talking about laying on more charter flights, the BBC's correspondent in Shanghai, Francis Markus, says.
The flights were started last year to ferry thousands of Taiwanese businessmen based in China home for the Lunar New Year.
It is another sign of the forces of economic integration and political nationalism pulling in opposite directions, and both sides will have to manage that tension successfully if conflict is to be ultimately averted, our correspondent says.