Chinese telecom giants Huawei and ZTE have effectively been banned from rolling out Australia's 5G network after Canberra warned of security risks with companies beholden to foreign governments, prompting Beijing to denounce "ideological biases".
Huawei - one of the world's largest telecommunications equipment and services providers - has been under scrutiny in some countries, including the United States and Australia, over its alleged close links to Beijing.
It was blocked from bidding for contracts on Australia's ambitious national broadband project in 2012, reportedly due to concerns about cyber-security.
The company has long disputed claims of any links to the Chinese government.
Canberra said in a statement that the "involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law" posed a security risk.
Acting Home Affairs Minister Scott Morrison and Communications Minister Mitch Fifield added that there was "no combination of technical security controls that sufficiently mitigate the risks".
In Beijing, foreign ministry spokesman Lu Kang said China was "gravely concerned", accusing Canberra of making "all types of excuses to create hurdles and taking discriminatory measures".
"We urge the Australian side to abandon ideological biases and create a sound environment for the fair competition of Chinese enterprises in Australia," Lu said.
Huawei Australia tweeted that the decision was an "extremely disappointing result for consumers".
"Huawei is a world leader in 5G. Has safely & securely delivered wireless technology in Aust for close to 15 yrs," the firm said.
The move came amid tensions between Beijing and Canberra that have seen Australia refocus its foreign aid programmes to win hearts and minds in the Pacific, where China has been flexing its muscles too.
Beijing has extended loans to the impoverished nations in the region, with Canberra raising fears some might get trapped with unsustainable debts, handing China influence.
Australia in June said it would negotiate a security treaty with Vanuatu and also fund and build an undersea communications cable to the Solomon Islands and Papua New Guinea.
The Solomons arrangement came after the Pacific nation was convinced to drop a contract with Huawei.