China cancels US military and diplomatic contact
Pentagon spokesman Maj Stewart Upton said: "China's continued politicisation of our military relationship results in missed opportunities."
The Chinese move affects a visit by a senior Chinese general, navy port calls and meetings on the proliferation of weapons of mass destruction.
China will also not participate in an exchange on humanitarian assistance and disaster relief.
"It's an unfortunate step," said US state department deputy spokesman Robert Wood.
On Saturday the Chinese foreign ministry said: "The Chinese government and the Chinese people strongly oppose and object to the US government's actions, which harm Chinese interests and Sino-US relations."
The US is Taiwan's largest arms supplier.
The US said the deal would not alter the military balance in the region but was "a demonstration of the commitment of this administration to provide Taiwan the defensive arms its needs to be strong".