The government of Sao Tome and Principe has cut diplomatic ties with Taiwan, officials said.
China welcomed the decision by the African island nation saying it was "back onto the correct path of the One China principle".
Taiwan's foreign ministry condemned the move, alleging Sao tome demanded a huge amount of financial support.
The "One China" principle insists that there is only one China in the world and that Taiwan is a part of it.
The move comes just over a week after comments by US president-elect Donald Trump that the US did not have to abide by the One China policy - the diplomatic acknowledgement by the US of the One China principle.
The move means only 21 countries and governments, including Swaziland and Guatemala, still maintain official ties with Taiwan.
'Astronomical financial help'
Sao Tome suspended ties with China in 1997, after choosing to officially recognise Taiwan.
Any country that wants diplomatic relations with mainland Beijing must break official ties with Taipei, leading to Taiwan's diplomatic isolation from the international community.
Taiwanese Foreign Minister David Lee alleged on Wednesday that Sao Tome was demanding "an astronomical amount of financial help," without providing further details.
"We think the Beijing government should not use Sao Tome's financing black hole ... as an opportunity to push its 'One China' principle," Mr Lee said on Wednesday.
"This behaviour is not helpful to a smooth cross-strait relationship."
China has not said whether it will now establish diplomatic ties with the West African state.