The UK will suspend its extradition treaty with Hong Kong “immediately and indefinitely”, says Dominic Raab.
Announcing the move in the Commons, the foreign secretary said the UK “wants a positive relationship” with China.
But he said the “imposition” of the new national security law in Hong Kong by Bejing was a “serious violation” of the country’s international obligations.
Labour said it would support changes to the law, calling it a “step in the right direction”.
Mr Raab also confirmed the government would extend its arms embargo – which has been in place with China since 1989 – to Hong Kong, stopping the UK exporting equipment, such as firearms, smoke grenades and shackles to the region.
But China has accused the UK government of “brutal meddling”, insisting it was committed to upholding international law.
The country also promised a “resolute response” if the UK withdrew from extradition arrangements.
Bejing introduced the security law at the end of June, creating new offences which could see Hong Kong residents sent to mainland China for trial.
Critics say it could see pro-democracy protesters in the region being served with life sentences.
Mr Raab told MPs: “There remains considerable uncertainty about the way in which the new national security law will be enforced.
“I would just say this: the UK is watching and the whole world is watching.”