The government has temporarily stopped state-owned companies from bidding for fresh contracts in Vietnam, several sources familiar with the matter said, as the two countries are embroiled in an increasingly bitter dispute over territorial claims in the South China Sea.
An official working at a state-owned enterprise, who asked not to be named, said the group had been informed of the move on the phone by the Ministry of Commerce.
Three other Chinese contractors operating in Vietnam have also been told, sources with the firms said.
A member of staff working at the ministry's bidding permit office confirmed the suspension, but said it was not known how long the ban might last.
China's economic and commercial counsellor in Vietnam, Xu Qisong, decined to comment.
Xu Liping , an expert on China's relations in Southeast Asia at the National Institute of International Strategy at the Chinese Academy of Social Sciences, said Beijing may be trying to put economic pressure on Vietnam's government.
"Any measure to enhance China's investment in Vietnam is inappropriate with the current political tension," said Xu.
"This is a sign that China is playing the economic card. How effective will it be? We will have to wait and see."
Vietnamese and Chinese ships have been involved in a series of clashes since China set up an oil rig near the disputed Paracel Islands in the South China Sea last month. Tensions over the move caused anti-China riots in Vietnam last month.
The Foreign Ministry said in a statement yesterday that Vietnamese ships had rammed Chinese vessels and trespassed in Chinese restricted waters 1,416 times by 5pm on Saturday.
China has been Vietnam's biggest trade partner since 2004.
But it ranked only 11th in 2012 in terms of foreign direct investment in the Southeast Asian nation, according to figures from Vietnam's general statistics office.
Some 113 Chinese companies, including electrical and chemical engineering firms, are listed as operating in Vietnam, according to the Business Association of China in Vietnam.
China Southern Power Grid led investment in the US$1.76 billion Vinh Tan 1 coal-fired power plant last year, in what is thought to be the biggest contract undertaken by a Chinese company in Vietnam.
Zhang Jie, another foreign affairs expert at the Chinese Academy of Social Sciences, said the impact of the ban on bidding would be limited in Vietnam.
"China is not able to threaten economic development in Vietnam as the amount of our development work there is too small," said Zhang.
"Even if Chinese enterprises bid for projects in Vietnam, in the current conditions the Vietnamese government wouldn't let Chinese contractors win."