China claims democratically governed Taiwan as its own territory, a position the government in Taipei rejects. China has pressured Taiwan by increasing its military presence around the island over the past five years.
Lying roughly between southern Taiwan and Hong Kong, the Taiwan-controlled Pratas Islands are seen by some security experts as vulnerable to Chinese attack due to their distance - more than 400km - from Taiwan island.
Taiwan's Coast Guard said on Friday, it spotted a Chinese coast guard ship which then "forced its way" into restricted waters around the Pratas after speeding up and making a sharp turn while disregarding warnings from the Taiwan ship.
The two ships are still in a "standoff" and are engaged in "intense verbal exchanges," the Coast Guard said.
China's Taiwan Affairs Office did not immediately respond to a request for comment.
Taiwan's Coast Guard said the Chinese ship is trying to create the false impression that China has jurisdiction over the waters around the Pratas.
"This not only undermines the status quo of peace and stability in the Taiwan Strait, but also makes China a troublemaker in cross-strait and regional affairs," it added in a statement. "Taiwan's maritime sovereignty must not be challenged."
The last time this happened was almost two weeks ago, when the Chinese ship ended up leaving.
The Pratas, an atoll which is also a Taiwanese national park, is only lightly defended by Taiwan and its Coast Guard has that responsibility rather than the military.
In January, Taiwan said a Chinese reconnaissance drone briefly flew over the Pratas.
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