"For the military, the current situation is the grimmest in the more than 40 years since I joined the service," Mr Chiu told parliament.
He warned that even "slight carelessness" or "miscalculation" could spark a crisis, and that China would be able to launch an invasion of the island in four years.
"It is capable now but it has to calculate what it would cost, and what kind of outcome it wishes to achieve," he said.
"After 2025, the cost and losses would be lowered to a minimum," he added, without providing further details.
Chinese President Xi Jinping, who has called the seizure of Taiwan "inevitable", also described relations with Taipei as "grim" in a letter to the island's newly elected main opposition leader last week.
Beijing has ramped up military, diplomatic and economic pressure since Tsai Ing-wen became Taiwan's president in 2016, as she views the island as "already independent" and not part of "one China".
"Actions taken by... (China) have seriously damaged peace and stability in the region," Ms Tsai said on Wednesday.
"I want to tell the authority in Beijing that it has to exercise restraint to avoid potential conflicts due to miscalculations or accidents."
Ms Tsai said recently that Taiwan will "do whatever it takes" to defend against threats, but seeks peaceful coexistence with China.
The Chinese flights have also prompted criticism by Washington.
When asked about the situation, President Joe Biden told reporters on Tuesday that he had discussed Taiwan with Mr Xi.
"We will abide by the Taiwan agreement. That's where we are and we made it clear that I don't think he should be doing anything other than abiding by the agreement," he said.
US officials later clarified the president was not referring to a new conversation. Mr Biden and Mr Xi spoke last month and discussed a range of issues in their call.
Mr Biden appeared to be referring to the US policy in place since Washington switched diplomatic recognition from Taipei to Beijing in 1979.
Under the arrangement, the United States provides Taiwan with military equipment to defend itself, in an unofficial, non-diplomatic relationship.
Ms Tsai's spokesman said Taiwan had reached out to Washington after Mr Biden's remarks and was assured that US policy on the island "remained unchanged".
Last year, a record 380 Chinese military jets made incursions into Taiwan's defence zone. The number as of October this year has already exceeded 600.
The zone is not the same as Taiwan's territorial airspace but includes a far greater area that overlaps with part of China's own air defence identification zone.