China has warned that Taiwan's decision to scrap a council on reunification with the mainland could bring disaster.
Mr Chen officially called the council 'absurd'
The move will "create antagonism and conflict within Taiwan and across the strait," China's ruling Communist Party and government said in a statement.
Mr Chen announced on Monday that the National Unification Council and its guidelines would "cease to function" due to China's "military threat".
China said Mr Chen was pushing Taiwan towards formal independence.
China and Taiwan have been governed separately since a civil war ended in 1949, but China still sees Taiwan as its territory and has threatened to use force if the island moves towards declaring independence.
The US, Taiwan's closest ally in the face of this threat, has made clear that it supports the status quo.
The US State Department said on Monday that it would take Mr Chen at his word that his latest move meant no change to the situation.
"It's our understanding that President Chen did not abolish it, and he reaffirmed Taiwan's commitment to the status quo," spokesman Adam Ereli told Reuters.
Mr Chen took care to use the phrase "cease to function" rather than abolish when he made the announcement, possibly because he promised in 2000 that he would not abolish the council or its guidelines.
China dismissed the difference as a "play of words".
No military threat
In a joint statement carried by China's official Xinhua news agency, the ruling Communist Party and the cabinet's Taiwan Affairs Office said Mr Chen's determination to push for independence "will only bring disaster to Taiwan society".
The comments did not include any threat of military action, or say what sort of disaster Beijing was predicting.
China's President Hu Jintao took the unusual step of commenting directly on the Taiwanese move.
"We will continue to strive for peaceful reunification, but we will absolutely not allow Taiwan to break away from the motherland," he was quoted as saying by Chinese state TV.
Chinese newspaper editorials on Tuesday also slammed Mr Chen's decision.
The official China Daily newspaper said his actions were "risky and provocative" and threatened "to destroy peace and stability in the Asia-Pacific region".
Despite China's reaction, Mr Chen signed the documents which officially disbanded the council on Tuesday.
Taiwan complains that China has been building up its military offensive capability across the Taiwan Strait, and has at least 700 ballistic missiles targeting the island.
Mr Chen's wish to get rid of the Council and its guidelines has long been known.
Analysts said he had moved to scrap it now because - with only two years left in office - he wants to recover some political momentum for his Democratic Progressive Party.
The National Unification Council was set up in 1990 as an attempt to convince the Chinese authorities that Taiwan was committed to reunification, and it helped kick-start landmark talks between the two sides in the early 1990s.