The US says it is investigating claims China has broken trade agreements by giving billions of dollars in subsidies to its own green energy sector.
The inquiry follows complaints by US steel workers that China had violated World Trade Organisation (WTO) rules in a bid to dominate the global market.
US Trade Representative Ron Kirk said the US hoped to ensure "a level playing field" for US manufacturers.
He pledged to pursue the case through the WTO if the claims are verified.
President Barack Obama has identified green technology development and production as a way to revive the moribund US manufacturing sector and create new jobs.
"Green technology will be an engine for the jobs of the future, and this administration is committed to ensuring a level playing field for American workers, businesses and green technology entrepreneurs," said Mr Kirk said in a statement announcing the investigation.
In a 5,800-page petition to the office of the trade representative, the United Steelworkers union last month accused Beijing of using subsidies, discrimination against import goods and other economic mechanisms to bolster domestic producers of advanced batteries, wind and solar energy products, clean-energy vehicles and other products.
The new trade dispute comes amid concerns in the US that China, the largest holder of US government debt, has illegally manipulated its currency to bolster exports, thereby harming US manufacturers and driving up the US trade deficit with China.
The US Treasury Department is weighing whether formally to brand China a "currency manipulator", a move that could heighten tensions between the two governments.
Meanwhile, a Chinese government spokesman on Friday warned the US not to use the weak yuan as a "scapegoat" for its own economic problems.
The US trade deficit with China was at an all-time high of $28bn (£17.43bn) in August, up 8.2%. So far this year, the trade deficit is running 20.6% higher than the 2009 pace.