China and Honduras began formal diplomatic relations on Sunday, with Taiwan accusing Beijing of "coercion and intimidation" to lure away its few remaining allies.
China's announcement of the move came shortly after Tegucigalpa said it had officially severed ties with Taipei.
"The two Governments have decided to recognise each other and establish diplomatic relations at the ambassadorial level", effective immediately, China's foreign ministry said in a statement.
The switch cuts to 13 the number of countries that still diplomatically recognise Taiwan, which has lost several Latin American allies in recent years.
China considers self-ruled, democratic Taiwan a part of its territory, to be retaken one day -- by force, if necessary. Under its 'One China' policy, it does not allow countries to recognise both Beijing and Taipei.
In Beijing, Honduran Foreign Minister Enrique Reina and his Chinese counterpart Qin Gang signed a joint communique, according to a video published by state media CCTV.
"China welcomes (Honduran) President Xiomara Castro to visit China at an early date," said Qin.
Earlier, Reina said that upon Castro's instructions, he had "communicated to Taiwan the decision to cease diplomatic relations".
"The government of the Republic of Honduras recognises the existence of only one China in the world, and that the government of the People's Republic of China is the only legitimate government that represents all of China," the ministry said.
"Taiwan is an inalienable part of Chinese territory."
Taiwan's President Tsai Ing-wen said the switch was "part of... China's coercion and intimidation" of Taipei's allies.
"China has suppressed the international space of (Taiwan) for a long time, unilaterally endangering regional peace and stability," read a statement from her office.
In Beijing, Qin said China "sternly admonish(ed)" Taiwan's government for "engaging in activities that promote Taiwanese independence and separatism".
There, Reina and Qin had clinked champagne glasses in front of their countries flags. But in Taipei, officials at the foreign ministry had removed the blue-and-white banners of their former ally.
Pressure and intimidation
Taiwan Foreign Minister Joseph Wu confirmed the severing of ties, accusing China of offering "financial incentives" to lure away the island's allies.
"After our negotiations with (Honduras) came to no avail we have decided to terminate diplomatic relations effective immediately to maintain our national sovereignty and dignity," he said. "We will end all cooperation projects and close our embassy."
Wu asserted Taiwan's established position of viewing itself as an "independent sovereign country".
"Our country will not succumb to the pressure and intimidation by the Chinese authoritarian government, and we will uphold the values of freedom and democracy," he said.
Earlier this month, Reina said economic necessity was behind his country's decision, and that the Honduran government had asked Taiwan to increase financial aid and "realign" $600 million in debt owed to Taipei.
On Sunday, Wu said Castro's government had "demanded we provide billions of US dollars in financial aid".
Honduras is one of the poorest countries in its region, with almost 74 per cent of its nearly 10 million people living in poverty. Tegucigalpa's move followed negotiations with China on building a hydroelectric dam.
In its Sunday statement, China's foreign ministry said Beijing "stands ready to enhance friendly cooperation with Honduras in various fields to the benefit of our two countries and peoples".
Latin America has been a key diplomatic battleground for China and Taiwan since the two splits in 1949 after a civil war.
Honduras's announcement continues a trend in the region, with Nicaragua, El Salvador, Panama, the Dominican Republic and Costa Rica all switching diplomatic recognition to Beijing in recent years.
The United States remains Taiwan's most significant ally, and largest weapons supplier, despite having switched recognition to Beijing in 1979.
This week, Taiwan confirmed that President Tsai would later this month visit Guatemala and Belize -- two remaining diplomatic allies -- while also making stopovers in the United States.
Tsai will depart Taiwan on March 29 for the 10-day trip, stopping in New York and Los Angeles while en route to and from the Central American countries.
Analysts linked the timing of Honduras's switch with Tsai's visit.
"It looks like China is punishing Taiwan and President Tsai for making the US transit visit," said Kuo Yu-jen, a political analyst at National Sun Yat-sen University in Taiwan.
"This is a warning before Tsai begins her visit to Central America on March 29 and I think China will make more diplomatic moves during her visit."