The South Pacific nation of Nauru announced Monday it was switching diplomatic ties from Taiwan to China, saying it would no longer consider the self-governing island "as a separate country" but "rather as an inalienable part of China's territory."
Taiwan cut ties in return to "safeguard our national dignity", and accused Beijing of buying Nauru off.
"We demand that Nauru immediately close its embassy in Taiwan," Taiwan's Deputy Minister of Foreign Affairs Tien Chung-kwang said.
Taiwan's 12 remaining diplomatic allies include the Vatican, Guatemala and Paraguay, plus Palau, Tuvalu and the Marshall Islands in the Pacific.
Nauru took the decision only days after Taiwan's presidential election that was won by Lai Ching-te who Beijing described as a separatist and a "troublemaker."
A Taiwanese official briefed on the matter, speaking on condition of anonymity as they were not authorized to speak to the media, said Beijing is offering Nauru $100 million annually.
A Nauru government spokesperson declined to comment.
China "welcomed" Nauru's decision to cut ties with Taiwan.
"As a sovereign and independent nation, Nauru has announced... it is willing to restore diplomatic relations with China," a spokesperson for Beijing's foreign ministry said.
"China appreciates and welcomes the Nauru government's decision," the spokesperson added.