The European Union wants Beijing to start urgent, formal talks on ways to restrict imports of two types of Chinese textiles or face penalties.
Cheaper Chinese clothes have been flooding Western markets
The EU and US are both investigating the impact of a surge in Chinese textile exports on their industries since global quotas ended in January.
EU Trade Commissioner Peter Mandelson said his inquiry found a "very high" threat to T-shirt and flax yarn makers.
He said he would impose limits on these goods if China fails to take action.
"In view of the seriousness of market disruption in these categories, formal consultations need to begin immediately," said Mr Mandelson.
Further pressure was exerted on China on Tuesday when President Bush said it must abide by international trade rules.
Washington last week reimposed quotas on certain Chinese imports such as cotton shirts, blouses and underwear.
The government has come under pressure to clamp down on Chinese imports from manufacturers worried about job losses in the US textile industry.
"When it joined the WTO, China also agreed to the rules of International Trade and it is in the interests of both China and the United States for China to abide by them," Mr Bush said.
Altogether, the EU is investigating nine categories of textile imports made in China.
It has found that Chinese sales of T-shirts in the EU have risen 187% since the start of the year, while flax yarn sales are up 56%.
Under World Trade Organisation rules, the EU could impose temporary safeguards to stem the tide of Chinese textile goods from 15 days of the start of formal talks.
The EU's broad inquiry began on 29 April and must run for 60 days, but formal talks would allow it to speed up safeguards for European producers.
Any temporary sanctions would run till the end of 2005, Mr Mandelson said.
China's promise to impose customs tariffs on its own exports from the start of the year has "had no appreciable effect" so far, he said.
The EU is waiting for "full details of new measures" promised by China, he added.
His inquiry has found Chinese competition is hitting textile producers in Greece, Portugal and Slovenia particularly hard.
T-shirt output in Greece is down 12% on a year ago, Portugal's is down by between 30% and 50%, and Slovenia's has dropped 8%.
Production and sales of flax yarn throughout Europe have both fallen by a quarter, and jobs by 13%.
"This sudden surge of imports is also damaging the textiles sectors in several vulnerable, developing countries," Mr Mandelson's statement said.
EU imports of T-shirts from Pakistan, Sri Lanka and Bangladesh have all fallen.
The US government opened its inquiry at the same time as the EU.