The US Department of State confirmed the impending closure of the Houston consulate, after China's foreign ministry reported it had been told to shut the mission.
The news ruffled financial markets with a bout of risk aversion in European stock trading.
The closure had been ordered "in order to protect American intellectual property and American's private information", State Department Morgan Ortagus said in a statement on Wednesday.
"The United States will not tolerate the PRC's violations of our sovereignty and intimidation of our people, just as we have not tolerated the PRC's unfair trade practices, theft of American jobs, and other egregious behaviour," she added, referring to China by its official name, the People's Republic of China.
The two countries have clashed recently over trade, technology, a national security law imposed on Hong Kong and China's claims in the South China Sea.
China denounced the US order as an escalation.
"The unilateral closure of China's consulate general in Houston within a short period of time is an unprecedented escalation of its recent actions against China," Chinese foreign ministry spokesman Wang Wenbin told a regular news briefing.
"We urge the US to immediately revoke this erroneous decision. Should it insist on going down this wrong path, China will react with firm countermeasures," he said.
The US government has been harassing Chinese diplomats and consular staff for some time, Mr Wang said, as well as "intimidating and interrogating Chinese students and confiscating their personal electrical devices, even detaining them".
He also said the consulate was operating normally but did not reply to questions about US media reports in Houston on Tuesday night that documents were being burned in a courtyard at the consulate.
"It appears to be open burning in a container within the courtyard of the Chinese consulate facility. It does not appear to be an unconfined fire but we have not been allowed access," Houston fire department chief Samuel Pena was quoted as saying by KTRK, an ABC television affiliate.
"We are standing by and monitoring."
Houston police told FOX 26 that staff there were burning documents because they are being evicted from the building on Friday afternoon.
Also on Tuesday, the US Justice Department indicted two Chinese nationals for a decade-long cyber espionage campaign in which they were accused of stealing information on weapons designs, drug information, software source code and personal data.