image copyrightGetty Imagesimage captionNato has warned of China's military strength, but said it did not want a new Cold War with China
China has accused Nato of slandering its peaceful development after alliance leaders warned about "systemic challenges" coming from Beijing.
China's actions, including expanding its nuclear arsenal, threatened "rules-based international order", Nato said.
It was the first time Nato had placed China at the centre of its agenda.
In its response, China said its defence policy was "defensive in nature" and urged Nato to "devote more of its energy to promoting dialogue".
"Our pursuit of defence and military modernisation is justified, reasonable, open and transparent," China's mission to the European Union said in a statement.
It added that Nato should view China's development in a "rational manner" and "stop taking China's legitimate interests and rights as an excuse to manipulate bloc politics, create confrontation and fuel geopolitical competition".
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Nato's statement came at the end of a one-day summit in Brussels on Monday.
It marked Joe Biden's first Nato meeting as US president.
The powerful political and military alliance between 30 European and North American countries sees Russia as a main threat. Mr Biden is due to meet Russian President Vladimir Putin in Geneva on Wednesday.
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According to the summit's communiqué (concluding statement), China's "stated ambitions and assertive behaviour present systemic challenges to the rules-based international order and to areas relevant to Alliance security".
"We remain concerned with China's frequent lack of transparency and use of disinformation," it says.
image copyrightReutersimage captionNato Secretary-General Jens Stoltenberg said the military alliance didn't want a Cold War with China
Nato chief Jens Stoltenberg told reporters: "We're not entering a new Cold War and China is not our adversary, not our enemy."
But, he added: "We need to address together, as the alliance, the challenges that the rise of China poses to our security".
China is one of the world's leading military and economic powers, whose ruling Communist Party has a tight grip on politics, daily life and much of society.
The Chinese military currently has the largest armed forces in the world, with over two million personnel on active duty.
Nato has become increasingly concerned about the growing military capabilities of China, which it sees as a threat to the security and democratic values of its members.
In recent years, the alliance has also grown wary of China's activities in Africa, where it has set up army bases.
What is Nato?
- The North Atlantic Treaty Organisation, known as Nato, is the world's most powerful regional defence alliance
- It was set up in 1949, after World War Two, to counter the threat of communist expansion
- It was founded on the principle of collective defence between allies
- It originally had 12 members, but now has 30
- Read more about Nato
UK Prime Minister Boris Johnson said: "When it comes to China, I don't think anybody around the table wants to descend into a new Cold War with China."
Nato's tough message on China followed criticism of the country by the G7, a group of major economies that met for a summit in England last week.
image copyrightEPAimage captionUK Prime Minister Boris Johnson arriving at the summit
In a communiqué G7 leaders criticised China for alleged human rights abuses and demanded a transparent investigation of the origins of Covid-19 in the country.
In response, China accused the G7 of "lies, rumours and baseless accusations" in a statement through its embassy in the UK.