The US has imposed sanctions against a Chinese company for allegedly supplying Iran with ballistic missile technology, without providing details of the deal.
The US has provided no evidence
The penalties will deprive one of China's largest conglomerates, North China Industries (Norinco), of annual sales in the US worth more than $100m for the next two years.
China denied the US claims and called the sanctions "entirely unreasonable".
US officials said the sanctions - which cancel all export-import licences and contracts with the US - are thought to be the severest yet to be imposed against a Chinese company.
The latest US move comes as it tries to build a case against Iran claiming it is developing nuclear weapons.
Iran's Shahid Hemmat Industrial, the government defence industrial agency in charge of developing and producing ballistic missiles, will be largely unaffected because of existing US sanctions against the country.
The US did not specify what technologies were sold but claims the deal was struck after August 2002.
"These penalties were imposed because the US Government determined that these entities contributed materially to the efforts of a foreign country - in this specific case Iran - to use, acquire, design, develop, produce or stockpile missiles capable of delivering weapons of mass destruction," State Department spokeswoman Jo-Anne Prokopowicz told AFP.
Norinco, a key supplier of the People's Liberation Army of China declined to comment.
Responding to whether Norinco had exported ballistic missile products to Iran, a spokesman said, "Please don't ask further. My brain is blank."
In April 2000, the Clinton administration imposed sanctions against the Shahid Hemmat Industrial and three other Iranian companies for "knowingly engaging in the export of military technology".
Shahid Hemmat is a key developer of Iran's Shahab-3 missile, which reputedly has a range of 800 miles, enough to reach Israel, Turkey and Afghanistan.
The Shahab-3 is thought to be based on the design of North Korea's Nodong.
President George W. Bush has group Iran with Iraq and North Korea as a member of a so-called 'axis of evil'.
The sanctions will also do little to improve relations with China just days ahead of a meeting between Mr Bush and the new Chinese President Hu Jintao.
"Politically it won't be a good thing, but it won't affect
the first summit meeting very substantially," Zhu Feng, director of the International Security Programme at Peking University.
"In the context of US pressure on Iran, it's a big warning to China that it has to watch what it's doing," he said.
Norinco is a global supplier of vehicles and mechanical products, optical-electronics, chemicals, explosives, civil firearms, light industrial products and "special products".
According to documents made public on Thursday the sanctions went into effect on 9 May.