China has announced a series of crackdowns on computer use
Cash earned in games in China can no longer be spent on real world goods.
The Chinese Ministry of Commerce policy aims to limit the impact of game currencies on real-world markets.
In the future, any cash earned by Chinese gamers can only be spent to acquire items or equipment in that particular game.
The move is widely seen as a crackdown on so-called "gold farming" in which players amass virtual money and then sell it to other players for real cash.
Exact figures for virtual currency exchange are hard to come by, official estimates put the figure in China at "several billion yuan". At current exchange rates 1bn yuan is equal to about £88m.
"The virtual currency, which is converted into real money at a certain exchange rate, will only be allowed to trade in virtual goods and services provided by its issuer, not real goods and services," the Ministry said in a statement.
The Chinese government has taken an interest in virtual currencies since 2007 when their use for gambling and black market trade became apparent.
One of the most popular virtual currencies in China are "QQ coins" issued by Chinese net firm Tencent. The QQ coins can be used to pay for in-game items or elements that subscribers can add to their blog. Some stores and websites had been starting to accept QQ coins in payment for low-value items.
The move is also likely to affect the many Chinese people who are involved in gold farming. This involves being paid to play an online game, such as World of Warcraft, with the virtual currency winnings sold on to other players for cash.
A survey of the world gold farming market carried out in 2008 estimated that up to 500,000 people in the developing world were involved in the trade.
The crackdown on virtual cash is one of several changes China has announced on the way computers can be used by citizens.
In early June, China announced that Green Dam filtering software would be put on all new PCs sold in the country. While not mandatory, the software aims to limit access to pornographic and violent sites.
China has also asked Google to ensure that its search engine cannot be used to let people get through to inappropriate sites.