Three people are reported to have died including a correspondent for the official Chinese news agency, Xinhua. At least 20 were injured.

A statement on Chinese television said the government severely condemned a "barbaric attack and a gross violation of Chinese sovereignty".

Nato said it was investigating the incident and regretted any casualties.

The BBC's Alva McNicol: "The bombing has outraged China"

But the deputy American ambassador to the UN, Peter Burleigh, said Nato would continue its attacks against Yugoslavia until its demands were met.

Nato said its targets included a command complex used as a residence by Yugoslav President Slobodan Milosevic and a hotel used as a barracks for men of the paramilitary leader Arkan.

Both locations are reported to be close to the Chinese embassy.

State of shock

BBC's Duncan Hewitt on the reaction in Beijing

Around 30 people were asleep inside the embassy building when it was hit.

Diplomats ran out into the street in a state of shock - some of them did not have time to put their shoes on.

The Chinese ambassador to the UN, Qin Huasan, described the bombing as a barbaric act and a violation of the UN charter.

Chinese Ambassador to the UN, Qin Huasun: "Gross violation to the UN charter"

"We call on Nato to stop immediately its military actions so as to avoid further humanitarian disasters," he said.

The UN Secretary-General Kofi Annan said he was shocked and distressed by the action.

Jacky Rowland in Belgrade: "The building stands in its own grounds"

The BBC's Jacky Rowland said the strike was almost certain to have diplomatic repercussions because of China's opposition to Nato action against Yugoslavia.

The embassy bombing followed an earlier daylight raid on Nis - Yugoslavia's third-largest city - in which 15 civilians were killed when a hospital and a market place were hit.

Renewed bombing on Belgrade

Pictures of the bombed embassy appeared on Serbian TV

The Hotel Jugoslavija, which is close to the Chinese embassy, was also hit and went up in flames, an eyewitness said.

In addition, city officials reported that the Yugoslav army headquarters and federal police building were hit.

The state-run Tanjug news agency said Nato jets had used graphite bombs to cripple the power network.