FCC cites danger that Beijing might use China Telecom to eavesdrop or disrupt US communications and "engage in espionage and other harmful activities against the United States".
The United States has banned China Telecom from operating in the country over security concerns, further straining already tense relations between the superpowers.
The Federal Communications Commission (FCC) on Tuesday ordered China Telecom Americas to discontinue its services within 60 days, ending a nearly 20-year operation in the United States.
The firm's "ownership and control by the Chinese government raise significant national security and law enforcement risks," the FCC said in a statement.
The FCC cited the danger that Beijing might use the company to eavesdrop or disrupt US communications and "engage in espionage and other harmful activities against the United States.
"The FCC’s decision is disappointing.. We plan to pursue all available options while continuing to serve our customers," China Telecom spokesman Ge Yu said in an email, according to Bloomberg News.
The move marks the latest salvo in a long-running standoff that has pitted the world's biggest two economies against each other over a range of issues including Taiwan, Hong Kong, human rights, trade and technology.
Rocky relations with US
China Telecom is China's largest fixed-line operator, and its shares jumped some 20 percent in August in its Shanghai stock debut.
But it has faced turbulence in the United States for years, particularly during Trump's presidency as the former president repeatedly clashed with Beijing over trade.
The US Justice Department had already threatened to terminate China Telecom's American dealings in April last year, saying US government agencies "identified substantial and unacceptable national security and law enforcement risks associated with China Telecom's operations."
Tuesday's announcement ramped up concerns about further measures against Chinese tech firms and battered shares in such firms listed in New York.
US regulators have also taken action against other Chinese telecoms, notably private giant Huawei.
Trump's White House in 2018 began an aggressive campaign to short-circuit the global ambitions of Huawei, cutting the tech giant off from key components and banning it from using Google's Android services.