China has indefinitely suspended all strategic economic talks with Australia, blaming the Morrison government's attitude towards the relationship.
The move cuts off all diplomatic contact with Beijing under the China-Australia Strategic Economic Dialogue, freezing discussions between key officials below a ministerial level.
But the deeper diplomatic freeze is largely symbolic, given Beijing was already refusing high-level meetings.
China will continue to buy vast quantities of Australian iron ore, minimising the economic impact.
China's National Development and Reform Commission released a strongly-worded statement to explain its decision on Thursday.
"Recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination," the commission said.
"Based on the current attitude of the Australian Commonwealth Government toward China-Australia cooperation, the National Development and Reform Commission of the People's Republic of China decides to indefinitely suspend all activities under the framework of the China-Australia Strategic Economic Dialogue."
On a strategic level, the move will make it even harder to repair heavily strained diplomatic relations between Australia and China.
It is the first major response from the Chinese government since the Morrison government cancelled Victoria's Belt and Road agreement in March.
Trade Minister Dan Tehan said it was a disappointing decision.
"The Strategic Economic Dialogue, which was last held in 2017, is an important forum for Australia and China to work through issues relevant to our economic partnership," Mr Tehan said in a statement.
"We remain open to holding the dialogue and engaging at the ministerial level."
Opposition Leader Anthony Albanese described the deepening diplomatic freeze as unfortunate and regrettable, saying Australia needed to maintain dialogue with China.
Mr Albanese also noted the Morrison government had damaged a key alliance with India through a controversial travel ban.
Earlier, Scott Morrison chose his words carefully as the prospect of military conflict between China and Taiwan continues to grow.
Taiwan has warned it is preparing for a "final assault" from Beijing and has called on support from Australia.
The prime minister was circumspect when asked whether Australia stood with Taiwan.
Australia abides by a "One China" policy in its engagement with Taiwan, meaning there are no formal diplomatic relations with Taipei.
But Canberra maintains trade, cultural and other exchanges with Taiwan separate from mainland China.
Mr Morrison said Australia "always honoured all of our arrangements in the Indo-Pacific" and singled out its alliance with the United States.
"We're very cognisant of the uncertainties in our region and I'm not one to speak at length on these things, because I don't wish to add to any uncertainty," he told 3AW radio.
Pressed again on whether Australia stood with Taiwan, the prime minister replied: "We have always stood for freedom in our part of the world."
The Morrison government's rhetoric has grown increasingly hawkish in the past fortnight, with senior officials raising the prospect of a military conflict with China over Taiwan.
Mr Morrison said Australia wanted to work with China and others to uphold free trade and the rule of law.
"That's what we're for - a free and open Indo-Pacific - and whoever is in favour of that, we are working well together with them."
Australian Associated Press