China has accused India of a border incursion between Sikkim and Tibet, according to Reuters, warning the development could "threaten peace".
The news agency quoted officials as saying that Indian troops had crossed the border, obstructing work on a road on the Chinese side.
Ongoing tensions over the past weeks have already led Beijing to block the border for official pilgrimages.
The border region saw clashes between China and India in 1967.
A spokesman with China's foreign ministry said Indian border guards "obstructed normal activities" by the Chinese military and demanded that India withdraw immediately.
The BBC's South Asia Editor Ethirajan Anbarasan says the latest development "appears to be one of the most serious border escalations between the two Asian giants in recent years".
The Nathu La pass on the border between Sikkim and Tibet connects India to Hindu and Buddhist sites in the region and is traditionally used by Indians for pilgrimages to those sites.
According to Indian media, tensions between the border guards from both sides have been ongoing for the past weeks, with Chinese troops allegedly crossing into Sikkim and destroying two make-shift Indian army bunkers.
The region has continued to be a source of tension between India and China.
China claims the state of Arunachal Pradesh as its own territory and strongly objected to an Indian decision to allow Tibet's spiritual leader, the Dalai Lama to visit.
It then renamed six districts in the region, in a move seen as "retaliation".
Beijing also warned that India's inauguration of a bridge connecting Arunachal Pradesh with the north-eastern state of Assam in May, was the "development of military infrastructure in a disputed province".