The new deal will upgrade Taiwan's anti-missile defences
The US has approved the sale of air defence missiles to Taiwan despite opposition to the deal from China and increasing US-China trade friction.
The deal will see Lockheed Martin sell Patriot air defence missile systems to the island.
The contract rounds off a $6.5bn (£4bn) package originally approved by former US President George W Bush in 2008.
Taiwan estimates that China has up to 1,500 missiles aimed at the self-ruled island, which China claims as its own.
Defence analysts say the Patriot Advanced Capability-3 missile is one of the best of its kind, able to shoot down short- and medium-range missiles.
Taiwan relies on US arms sales and a guarantee of protection for its defence.
A US advisory panel on US-China relations warned in November last year that Beijing was building a navy that could block the US military from reaching the region if fighting should break out between China and Taiwan.
In the past, China has threatened to use force to reunite Taiwan with the mainland if the island declares formal independence. But relations have improved since President Ma Ying-jeou took office in 2008.
Several days before the Pentagon confirmed the contract, China warned it could damage relations.
"We urge the US to recognise the gravity of selling arms to Taiwan... cancel any plans to sell arms to Taiwan and stop selling arms to Taiwan so as not to damage China-US relations," foreign ministry spokeswoman Jiang Yu said at a regular news conference on Tuesday.
The US has raised tariffs recently on a number of Chinese imports, including steel pipes and tyres as China has warned against trade protectionism.