"All Chinese people of all ethnic groups and all regions are fully entitled to religious belief. The so-called report ignores facts," foreign ministry spokesperson Hua Chunying said at a regular press briefing.
"We see that the United States is not a perfect country either. We urge the US to... manage its own affairs," Hua added.
More than 1,000 pilgrims stuck at Pak-Iran border
US Secretary of State Rex Tillerson pointed to China along with Bahrain, Iran, Pakistan, Saudi Arabia, Sudan and Turkey as he presented the State Department's annual report on Tuesday.
The report said that in 2016, China "physically abused, detained, arrested, tortured, sentenced to prison, or harassed adherents of both registered and unregistered religious groups."
It cited a national security law that explicitly bans "cult organizations," which includes the Falun Gong, Buddhist-inspired groups and several Christian groups.
A new government regulation in the northwestern Xinjiang region bans religious activity in schools and stipulates that parents or guardians who "organize, lure, or force minors into religious activities" may be reported to the police, the report said.
It also noted arrests and harassment of church leaders in eastern Zhejiang province, who have opposed a government campaign to remove crosses from churches.
In response, Hua said Washington should "stop the wrongdoing of using religion to interfere in other country's affairs".
China's officially atheist Communist authorities are wary of any organised movements outside their control, including religious ones, and analysts say controls over such groups have tightened under President Xi Jinping.
Chinese authorities had outlawed Falun Gong in July 1999, branding it an "evil cult".
Critical thinking a must for peace and progress
Members claim that hundreds of followers have since been beaten and killed in labour camps, a charge the Chinese government denies.
Beijing says it "peacefully liberated" Tibet in 1951 and insists it has brought development to a previously backward region.
But many Tibetans accuse the Chinese government of exploiting natural resources, as well as promoting activities and business of China's majority Han ethnic group at the expense of locals and the environment.
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